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number cruncher

What are we looking for?

The Bank of Canada is signalling a rising path for interest rates in order to combat inflation in an economy that is heating up. As a result, my associate Allan Meyer and I thought we would take a closer look at Canadian financials using our investment philosophy focused on safety and value. It’s a sector that tends to do well in a rising rate environment and usually meshes nicely with our investing style.

The screen

We started our search by filtering for Canadian-listed names in the financial sector with a minimum market capitalization of $5-billion. Market cap is a safety factor, generally larger companies offer more liquidity and stability. We sorted on this metric by largest to smallest.

Dividend yield is the annualized dividend divided by the recent share price. Dividends often reflect safe and steady business models, and of course Allan and I love to get paid while we wait for capital appreciation. It’s like collecting rent in real estate.

Then we looked at debt-to-equity as our final safety metric. It is the total debt outstanding divided by shareholders’ equity. A smaller number is preferred.

Price-to-earnings 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 and, if consistent, should lead to share price appreciation and dividend hikes over the long term. The opposite is true for a negative number.

Return on equity is the net income divided by shareholders’ equity and is a profitability measure.

We’ve also included the average and median numbers to allow for better comparability and the 52-week total return to track performance.

What we found

TSX-listed financial stocks

CompanyTickerMkt. Cap. ($ Bil.)Div. Yld. (%)Debt/Eqty. (%)P/EEarns. Mom. (%)ROE (%)52W Ttl. Rtn. (%)Recent Price ($)
Royal Bank of CdaRY-T208.73.3319.012.94.118.642.5146.25
TD BankTD-T196.73.3317.813.06.615.848.3107.81
Bank of Nova ScotiaBNS-T113.44.3256.311.19.015.037.293.14
Bank of MontrealBMO-T97.83.5286.411.57.616.059.9150.74
CIBCCM-T73.73.9229.611.04.216.650.1163.20
Manulife FinancialMFC-T53.34.820.77.73.213.315.527.41
Sun Life FinancialSLF-T40.93.851.910.71.014.516.569.73
Great-West LifecoGWO-T37.24.932.110.62.613.035.240.00
National Bank of CdaNA-T34.93.4208.711.26.220.646.2102.90
Intact Financial Corp.IFC-T32.42.237.415.85.118.125.7183.70
Power Corp. of CdaPOW-T26.34.797.09.610.613.544.242.29
Fairfax Fin'l Hldgs.FFH-T15.91.947.38.30.827.631.1659.06
IGM Financial Inc.IGM-T10.94.9114.010.45.716.237.945.64
iA Financial Corp.IAG-T9.03.025.69.45.313.833.183.58
TMX Group Ltd.X-T7.52.529.618.75.010.95.8133.08
Element Fleet Mgt.EFN-T5.22.4265.114.3-1.111.16.812.80
Average60.23.6146.211.64.715.933.5
Median36.03.5105.511.15.115.436.2

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Power Corp. of Canada and IGM Financial Inc. score well for safety and value. Power Corp. boasts the best earnings momentum while IGM Financial ties with Great-West Lifeco Inc. for the highest dividend yield. It should be noted that Great-West and IGM are part of the Power Corp. group of companies.

Manulife Financial Corp. looks interesting as it has the most attractive valuation and least debt/leverage. The banks tend to have the highest debt loads, but the nature of their business allows for this. Bank of Nova Scotia and National Bank of Canada look to be most attractive banks while Fairfax Financial Holdings Ltd. dominates the list in profitability. The sector has posted stellar returns over the past year; there isn’t a single name with negative performance.

The iShares S&P/TSX Capped Financials Index ETF (XFN) is an alternative for investors who like the sector but prefer to diversify risk away from individual securities.

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

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

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