Bank stocks look exceptionally bad right now, which means it’s a great time to buy for the long term.
As of late this week, Globeinvestor shows 12-month losses for Big Six bank stocks ranging from 28.4 per cent for Bank of Nova Scotia BNS-T to 2.3 per cent for National Bank of Canada NA-T. The collapse of Silicon Valley Bank has accelerated what was already a down trend for bank stocks.
If you’re interested in buying individual bank shares, Scotiabank offers the highest yield at 6.3 per cent, National Bank, Toronto-Dominion Bank TD-T and Bank of Montreal BMO-T offer the highest five-year dividend growth and National Bank is the best performer over a five-term period. If you’re open to buying all the big banks, consider one of several exchange-traded funds specializing in this area.
Note: The ETFs listed below offer straight-up bank exposure, without a covered call options strategy or leverage.
BMO Equal Weight Banks Index ETF (ZEB-T): The name says it all – assets in the fund are equally divided among the Big Six banks; the management expense ratio is 0.28 per cent and dividend distributions are made monthly, as is typical for this type of ETF.
Hamilton Canadian Bank Mean Reversion Index ETF (HCA-T): Puts the buy-low strategy into motion through quarterly rebalancing where 80 per cent of the portfolio is invested in the three banks that have underperformed recently, and 20 per cent in recent overperformers. The yield is 5.4 per cent, which is comparatively high in this group. The MER is 0.54 per cent.
Horizons Equal Weight Canada Banks Index ETF (HEWB-T): The same equal weighting in the Big Six, but with a useful twist. As part of the Horizons total return ETF product lineup, HEWB’s unit price reflects both share price changes for the banks and dividends. There are no cash dividend payouts and, in nonregistered accounts, your profits are treated as capital gains. The MER is 0.27 per cent.
iShares S&P/TSX Capped Financials Index ETF (XFN-T): Insurance companies are in the mix with XFN, but banks account for just over two-thirds of the portfolio. The MER is flat out expensive at 0.61 per cent.
RBC Canadian Bank Yield Index ETF (RBNK-T): Holds shares of the Big Six, but higher yielding banks get a heavier weighting. The yield is 4.7 per cent, compared to 4.3 per cent for ZEB. The MER is 0.32 per cent.
One final note for taxable accounts: Monthly cash distributions are primarily dividend income, with a small return of capital as well
Rob Carrick