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What are we looking for?

How Canada's largest financial institutions compare, based on economic profit, valuation and growth.

The screen

We created a spreadsheet to compare the Canadian banks and alternative lenders with a market cap above $500-million by looking at the following metrics:

  • Return on capital;
  • The economic performance index, or EPI (return on capital divided by cost of capital). An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • The 12-month sales change;
  • Future-growth-value-to-market-value ratio. This metric represents, in percentage, the portion of the market value that exceeds the company’s current operating value. The higher the number, the higher the baked-in premium for expected growth, and the higher the risk. A negative number reflects a discount;
  • Dividend yield;
  • One-year dividend growth;
  • Dividend payout ratio – that is, the proportion of net income paid out as dividends.

The three-month stock price performance is displayed for information purposes.

More about StockPointer

StockPointer is a fundamental analysis tool based on an EVA (economic value-added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 7,500 companies (Canadian stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Canadian Imperial Bank of Commerce is clearly the most interesting stock, especially out of the Big Six banks. CIBC generates the highest return on invested capital – EPI – and shows the strongest 12-month sales growth of all the Big Six. Interestingly, this above-average economic performance doesn't seem to be reflected in the stock price for now: It is the only big bank trading at a discount to its future growth value (FGV). The dividend-related data also make CIBC shine: Among its Big Six peers, it offers the highest yield and one-year dividend growth rate with the lowest payout.

First National Financial and Equitable Group are two very good options among alternative lenders. Equitable Group offers a lower yield because it retains most of its earnings to fund growth, but is committed to consistently increasing its dividend. The five-year average dividend growth rate has been of 13 per cent (not shown in table).

Investors are advised to do additional research prior to investing in any of the companies mentioned in the accompanying table.

Jean-Didier Lapointe is a financial analyst at Inovestor Inc.

A comparison of Canadian financial institutions

CompanyTickerMarket Cap. ($Mil)R/CEPI12M Sales Change FGV on MVDividend Yield 1Yr Dividend GrowthDividend Payout3Mo. Price Var.
First National Finl Corp.FN-T1,61054.8%5.314.8%-20.5%6.9%9.4%50%-0.6%
Toronto-Dominion BankTD-T120,84013.8%1.69.7%9.3%3.7%7.8%46%-2.8%
Royal Bank of CanadaRY-T143,08016.0%1.69.2%24.1%3.6%5.1%46%5.3%
Equitable Group Inc.EQB-T1,14018.2%1.514.1%-1.9%1.3%10.5%10%14.7%
Bank of MontrealBMO-T64,45013.5%1.510.2%9.0%3.6%4.9%45%2.2%
Home Capital Group Inc.HCG.B-T1,80015.3%1.4-2.4%-34.7%3.8%11.4%26%-9.3%
Timbercreek Financial Corp.TF-T6909.9%1.423.1%25.9%7.3%20.0%79%7.1%
National Bank of CanadaNA-T19,20014.1%1.36.8%19.9%4.0%5.8%55%1.6%
Bank Of Nova ScotiaBNS-T94,50014.1%1.310.0%24.3%3.9%5.8%49%2.3%
Laurentian Bank Of CanadaLB-T2,0009.4%1.24.1%-22.8%4.2%6.7%53%-0.9%

Source: StockPointer