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number cruncher

What are we looking for?

Canada’s big banks recently reported and their quarterly financial results generally beat Street expectations. There are also growing whispers from market pundits about interest rate hikes by the central banks, often a tailwind for financial firms. 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 usually meshes well with our approach.

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 are more liquid and stable. We sorted on this metric, from largest to smallest. Dividend yield is the annualized payout divided by the recent share price. Dividends generally reflect safety and stability. 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 and indicative of lower leverage or debt.

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. Over the longer term this should lead to share-price appreciation and dividend hikes. The opposite is true for a negative number. Return on equity reflects profitability. It is net income divided by shareholders’ equity, and a higher number is better.

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

What we found

Sun Life Financial Inc. and Canadian Imperial Bank of Commerce score well across the board for safety and value. IGM Financial Inc. is the highest yielding name on our list, while Manulife Financial Corp. is the least expensive and Intact Financial Corp. is the most profitable. Brookfield Asset Management Inc. had a large decline in recent earnings, which may be just a short-term phenomenon, but would be cautionary if it becomes a long-term trend.

In general, the names on the list boast solid dividends, attractive valuations and profitability metrics, which bode well for safety and value. The banks tend to carry higher debt loads, but this is normal as the nature of their business allows them to facilitate this. Most names have posted stellar returns over the past year but we should remind investors we were at a pandemic market low about a year ago.

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

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

Select TSX-listed financial stocks 

CompanyTickerMkt. Cap. ($ Bil.)Div. Yld. (%)Debt/Eqty. (%)P/EEarns. Mom. (%)ROE (%)52W Ttl. Rtn. (%)Recent Price ($)
Royal Bank of CanadaRY-T165.13.7367.811.63.114.744.7115.92
Toronto-Dominion BankTD-T149.23.9252.812.13.211.556.582.06
Bank of Nova ScotiaBNS-T95.44.6277.710.90.910.359.078.76
Brookfield Asset Mgt.BAM-A-T81.91.2414.120.7-210.5-0.829.154.24
Bank of MontrealBMO-T71.03.9275.210.48.410.786.7109.72
CIBCCM-T55.24.7235.710.03.512.070.1123.91
Manulife Financial Corp.MFC-T52.24.227.18.40.411.092.826.88
Sun Life Financial Inc.SLF-T37.63.442.610.52.413.853.464.18
Great-West Lifeco Inc.GWO-T30.45.339.810.40.011.458.332.75
National Bank of CanadaNA-T29.53.2317.611.37.416.6100.387.50
Intact Financial Corp.IFC-T21.82.236.415.512.518.229.3152.28
Power Corp. of CanadaPOW-T20.25.5128.89.5-4.410.065.332.38
Fairfax Fin'l HoldingsFFH-T14.42.474.19.373.5-0.812.3524.65
IGM Financial Inc.IGM-T9.25.8169.510.10.616.243.638.57
iA Financial Corp. Inc.IAG-T7.32.825.69.0-0.311.972.468.41
TMX Group LtdX-T7.32.227.919.82.19.333.4129.11
Element Fleet Mgt. EFN-T6.31.8265.115.5-1.111.860.514.42
Average50.23.6175.212.1-5.811.056.9
Median30.43.7169.510.52.111.558.3

Source: Refinitiv Eikon & 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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