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Canadian bank stocks have failed to generate any meaningful gains over the past two-and-a-half years, but don’t give up on them now.

One reason to embrace this going-nowhere era: Dividend yields are above 4.6 per cent on average for the Big Six bank stocks, making the quarterly payouts hard to ignore at a time when bond yields are falling.

Another reason: The banks’ third-quarter results, which rolled out at the end of August, suggest that these financial giants are doing okay even in challenging times – making the stocks looking curiously cheap.

How cheap? According to RBC Dominion Securities, the average big bank stock trades at just 9.2 times estimated 2020 earnings. That’s close to the group’s lowest price-to-earnings ratio over the past decade and well below the average P/E of 11.1 over the same period.

Based on the average price-to-book ratio of 1.35, bank stocks are also close to a decade low.

Admittedly, these low valuations reflect a number of simmering concerns. Declining global economic activity isn’t good for banks: Germany’s economy contracted in the second quarter and U.S. factory activity contracted in August for the first time since 2016. The factory report only adds to evidence of a U.S. trade-related slowdown reflected in declining bond yields and an inverted yield curve in the United States and Canada.

Declining interest rates in Canada and the United States, which can make lending less profitable for banks, is another factor to worry about. Although the Bank of Canada held its key rate unchanged on Wednesday, economists expect that the central bank will have to cut rates before the end of the year.

And yes, the banks are setting aside more money to cover bad loans. Loan loss provisions within Canadian personal and commercial banking divisions are up an average of more than 20 per cent over the past year, according to CIBC World Markets – adding to concerns should the economy really stumble.

Yet the latest quarterly results underscore why it’s worth sticking with bank stocks for the long haul: Even when facing headwinds, the Big Six are reporting reassuring results.

Revenues increased by an average of 6 per cent, year-over-year, in the fiscal third quarter. Profits increased 5 per cent year-over-year (after one-time adjustments related to things such as acquisitions and dispositions).

Analysts expect that growth will continue to plod along. Robert Sedran, an analyst at CIBC World Markets, estimates that the Big Six will see profit growth of just 3.5 per cent for fiscal 2019, and 4.6 per cent for 2020.

“There is every reason to assume that the fourth quarter will look a lot like the rest of the year in terms of the major trends, with earnings growth coming in the mid-single digits and the banks working hard to generate that growth,” Mr. Sedran said in a note this week.

Nonetheless, the growth suggests that the business of borrowing money at short rates, lending money at long rates and operating in a competitive environment that is best described as an oligopoly is a pretty good one (even when the bond yield curve isn’t tilted in the banks’ favour). And the growth is fuelling dividend increases: Payouts are up 8 per cent year-over-year after third-quarter hikes by Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Royal Bank of Canada.

What’s not to like here? And the fact that share prices are well off their highs should be seen as a buying opportunity. The S&P/TSX Banks industry group is down 9.6 per cent from its high a year ago and is back to levels seen in early 2017. In 2019, the banks are up 5 per cent (before dividends), but underperforming the broader S&P/TSX Composite Index by nearly 10 percentage points.

Bank stocks already appear to be reflecting a gloomy scenario for the economy. Should that scenario unfold, low bank-stock valuations suggest that the downside should be limited.

If the economy gets over its trade-related doldrums, bank stocks should recover. And if bank stocks plod along without much direction, dividends should continue to rise – pushing yields higher and making Canadian bank stocks harder to resist.

Full disclosure: The author owns units of BMO Equal Weight Banks Index ETF.