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Bank Stocks

What are bank stocks?

Bank stocks represent partial ownership in a financial institution that’s licensed to hold and loan money. Over time, bank stocks have been relatively safe investments, as they offer products and services that most people need.

How do you choose a good bank stock? 

1. Look at the bank’s profitability

First, you want to be sure the bank is even profitable. To do that, you can use the following metrics. 

  • Return on equity (ROE): this metric tells you how much profit a bank makes from its shareholder’s equity. The higher this metric, the more efficient a bank is using its stakeholder’s money. 
  • Return on assets (ROA): the ROA tells you the overall profit a bank makes in relation to its assets. The higher the ROA, the more profit a bank makes from its assets. 
  • Efficiency ratio: the efficiency ratio tells you how much revenue a bank uses towards its operating costs. The lower the efficiency ratio, the more revenue a bank theoretically has. 

2. Assess the bank’s risks 

One of the biggest risks a bank has is losing money on an outstanding loan. As with profitability, a couple metrics could help you see how much banks are losing.

  • Nonperforming loans ratio (NPL): Nonperforming loans are loans that are at least 90 days past their due date. A bank with a low percentage of NPL (2% is a good ratio) is doing fairly well collecting loan repayments from its customers. 
  • Net charge-offs: a net charge-off is a bank’s declaration stating that a loan hasn’t been paid and is unlikely to be paid. As with NPLs, the less net charge-offs a bank has, the less money it’s losing on outstanding loans. 

3.  Check back here for our top picks 

Finally, we’ll keep this page updated with our staff writer’s reviews and assessment of Canada’s bank stocks. Our writers often use these metrics to help investors see which bank stocks are doing well and which are doing poorly. 

Check back here for the most up to date information about bank stocks in Canada.

Top Articles

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| Andrew Button

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Recent Bank Stocks News

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Bank stocks like Royal Bank of Canada (TSX:RY)(NYSE:RY) are getting incredibly cheap.

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Market Crash: Is this Bank Stock a Buy?

| Jared Seguin

The Royal Bank of Canada (TSX:RY)(NYSE:RY) is a resilient blue-chip banking stock that's poised to withstand the market crash.

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| Andrew Walker

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| Andrew Walker

Top Canadian stocks now appear oversold.

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| Adam Othman

The earlier you start saving and building your wealth for retirement, the better your chances for cozy golden years. That’s…

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Home Capital: What a Run — and Can It Continue?

| Chris MacDonald

What is on the horizon for Canada's alternative lender Home Capital Group (TSX:HCG)?

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| Christopher Liew, CFA

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| Matt Smith

Buy attractively valued National Bank of Canada (TSX:NA) today and lock in a 5% dividend yield.

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TFSA Investors: Market Crash Makes Canadian Bank Stocks Attractive

| Haris Anwar

Falling stock prices of Canadian banks have made them extremely attractive for TFSA investors.

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If You Don’t Buy TD Bank (TSX:TD) Today, You’ll Kick Yourself Later

| Nelson Smith

Investors who aren't loading up on TD Bank (TSX:TD)(NYSE:TD) shares today will likely regret this decision in the future. So…

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Market Crash: Should You Buy CIBC (TSX:CM) Stock for the 6.8% Yield?

| Andrew Walker

An amazing yield on a top dividend stock. Is this the best time to buy CIBC (TSX:CM) shares?

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| Aditya Raghunath

The market crash presents investors an opportunity to buy stocks at attractive dividend yields.

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| Kay Ng

Forget energy stocks! Buy this safe dividend stock instead for huge gains. It offers a 5% yield and has much…

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3 Bank Stocks to Buy if They Get Hammered Any Lower

| Jason Hoang

Bank stocks on the TSX are constantly dipping, carving out an opportunity for long-term investors to capitalize on the situation…

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Lock in a 5.16% Yield With TD Bank’s (TSX:TD) Stock

| Mat Litalien, MBA

Now is the time to buy Toronto-Dominion Bank's (TSX:TD) stock. TD Bank's dividend yield is now at levels not seen…

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Canada Revenue Agency: Pay Fewer Taxes Due to This 2020 CRA Update

| Adam Othman

Leverage this significant CRA update, so you have to pay fewer taxes and invest in the Scotiabank stock.

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How to Generate $1,000 a Month in Dividends From Shares

| Kay Ng

Get $1,000 a month in dividends from these dividend stocks that are on sale. They include TD Bank (TSX:TD)(NYSE:TD) stock,…

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Frequently Asked Questions

Why invest in bank stocks?

Quality bank stocks have a strong history of generating profits and managing crises, making them a great investment.

In addition to their strong performance, many of Canada’s top banks pay dividends, with payouts that increase over time. For Canadian investors looking to pocket a little extra from their stocks, dividends can help you buy more shares or more cash.

Finally, bank stocks can help diversify your investing portfolio. If you already have stocks in other sectors (mining, technology, energy), bank stocks could add much needed stability, as well as expose you to the gains in another sector.