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What are we looking for?

The banks recently reported their quarterly earnings and the results generally seemed to be well received by the market. That got me and my associate Allan Meyer thinking about financial stocks generally. Financials dominate the Canadian market, usually pay good dividends and exhibit good safety and value characteristics, which is our stock in trade. Today we take a closer look.

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

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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 while the opposite is true for a negative number. Positive earnings momentum over the long term should lead 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

Life insurers Sun Life Financial Inc., Great-West Lifeco Inc. and iA Financial Corp. Inc. score well across the board for both safety and value. Great-West is also the highest yielding name on the list while iA Financial boasts the lowest debt. Manulife Financial Corp. has the most attractive valuation and looks good on most measures. Intact Financial Corp. has the best earnings momentum and looks interesting, but it is one of the more expensive and lowest-yielding names.

The banks dominate the list in terms of size or market cap, pay a good dividend and have attractive valuation and profitability ratios, but also 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 and Bank of Nova Scotia look to be the most attractive banks.

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. Moment.ROE (%)52W Ttl. Rtn. (%)Recent Price ($)
Royal Bank of CanadaRY-T137.84.5325.012.3-13.114.6-2.296.80
TD BankTD-T117.64.9309.412.2-13.313.0-9.965.01
Brookfield Asset Mgt.BAM-A-T76.21.4455.817.9-34.96.216.748.72
Bank of Nova ScotiaBNS-T73.45.9248.210.6-9.112.5-9.460.54
Bank of MontrealBMO-T48.75.6287.910.2-13.211.3-19.576.07
CIBCCM-T43.36.0192.610.4-16.712.60.297.90
Manulife FinancialMFC-T37.75.724.77.5-8.411.5-13.519.52
Sun Life Financial SLF-T30.74.244.210.52.114.02.152.80
Great-West LifecoGWO-T22.47.227.49.1-2.511.7-16.424.32
National Bank of Cda.NA-T22.04.3248.711.6-7.616.510.765.52
Intact Financial Corp.IFC-T19.02.532.316.414.313.915.6133.87
Power Corp. of Cda.POW-T15.87.1128.89.1-0.313.3-4.825.38
Fairfax Fin'l HoldingsFFH-T12.13.060.711.4-116.0-3.1-29.1439.48
IGM Financial Inc.IGM-T8.36.4202.411.7-0.617.00.535.05
TMX Group Ltd.X-T7.32.031.421.54.39.047.0130.87
iA Financial Corp.IAG-T5.24.011.38.02.113.1-3.048.37
Median4.7160.711.0-8.012.8-2.6
Average4.7164.411.9-13.311.7-0.9

Source: Eikon & Wickham Invesment Counsel Inc.

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

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