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What are we looking for?

My associate Allan Meyer and I take a closer look at Canadian financials using our investment philosophy focused on safety and value.

The screen

We started our search by filtering for Canadian exchange-listed names in the financial sector with a minimum market capitalization of $5-billion. Market cap is a safety factor: Generally, larger companies are more liquid and stable. The list is sorted on this metric by largest to smallest.

Dividend yield is the annualized dividend divided by the recent share price. Dividends generally reflect safety and stability, and we love to get paid while we wait for capital appreciation.

Then we looked at the debt-to-equity ratio as our last safety factor. It is the debt outstanding divided by shareholders’ equity. A smaller number indicates lower leverage or debt levels.

The price-to-earnings ratio is the recent share price divided by the projected earnings per share. It is a valuation metric: The lower the number, the better the value.

Earnings momentum is the change in annualized earnings over the past quarter. A positive number implies earnings are growing while the opposite is true for a negative number. Positive earnings momentum over the long term should translate to share price appreciation and perhaps dividend hikes.

Return on equity reflects profitability – a higher number is better. It is calculated by dividing net income by shareholders’ equity.

We’ve also included the average and median numbers for most metrics to allow for better comparability and the 52-week total return as a performance measure.

What we found

Manulife Financial Corp. scores well across the board for both safety and value. Fairfax Financial Holdings Ltd., Power Financial Corp. and Sun Life Financial Inc. look good on most measures. Fairfax boasts the best earnings momentum on the list while Power Financial has the highest yield. The banks dominate the list in terms of size or market cap and tend to pay a good dividend, and have attractive valuation and profitability ratios, but also tend to have high debt levels. It should be mentioned that owing to the nature of their business, banks are generally able to carry and service higher levels of debt. Canadian Imperial Bank of Commerce looks to be the most attractive bank.

For investors who like the sector but prefer to diversify away individual security risk through an exchange-traded fund, iShares S&P/TSX Capped Financials Index ETF (XFN) is an option.

Investors should contact an investment professional or conduct further research before buying any of the securities listed below.

Select TSX-listed financial stocks

CompanyTickerMkt. Cap. ($ Bil.)Recent Close ($)Div. Yld. (%)Debt/Equity (%)P/EEarns. Moment. (%)ROE (%)52W Ttl. Rtn. (%)
Royal Bank of CanadaRY-T152.1105.423.9310.811.21.517.710.1
Toronto-Dominion BankTD-T142.277.743.8179.
Bank of Nova ScotiaBNS-T87.071.204.9164.09.5-0.113.9-0.3
Bank of MontrealBMO-T64.1100.354.1278.510.
Brookfield Asset ManagementBAM-A-T63.764.001.3404.621.4-6.412.921.4
Manulife Financial CorpMFC-T47.724.
Cdn. Imperial Bank of CommerceCM-T46.4104.245.4147.
Sun Life Financial Inc.SLF-T32.354.733.842.110.5-
Great-West Lifeco Inc.GWO-T28.230.355.425.49.8-2.511.3-0.8
National Bank of CanadaNA-T21.263.114.3283.
Power Financial Corp.PWF-T20.130.306.075.68.6-
Fairfax Financial Holdings Ltd.FFH-T17.7642.
Intact Financial CorpIFC-T17.2123.502.528.316.8-1.411.637.0
Power Corporation of CanadaPOW-T10.728.335.7117.88.7-
IGM Financial IncIGM-T9.037.776.0200.411.3-
Industrial Alliance Ins. & FinancialIAG-T5.753.893.315.88.8-0.711.410.0
CI Financial Corp.CIX-T5.221.803.3105.28.8-0.436.2-1.3
TMX Group Ltd.X-T5.191.782.732.715.9-0.68.612.4

Source: Eikon and Wickham Investment Counsel Inc.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 30/05/24 4:00pm EDT.

SymbolName% changeLast
Royal Bank of Canada
Toronto-Dominion Bank
Bank of Nova Scotia
Bank of Montreal
Manulife Fin
Canadian Imperial Bank of Commerce
Sun Life Financial Inc
Great-West Lifeco Inc
National Bank of Canada
Fairfax Financial Holdings Ltd
Intact Financial Corp
Power Corp of Canada Sv
Igm Financial Inc
IA Financial Corp Inc
CI Financial Corp
TMX Group Ltd

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