Analysts around the world love to recommend the Big Five Canadian bank stock as investments.
They are diverse, stable, safe, sharing the bulk of the Canadian market with a good portion of revenues from outside Canadian borders.
Dividend yields are pretty hefty compared with banks in other jurisdictions.
What many investors don’t realize is the lesser-known layer of Canadian banks offering reasonable dividend yields and, because of their size, greater mobility at seizing opportunity
Three of the four banks could be classified as regional banks but all have taken measures to diversify.
Most regional of the group, Quebec-based Laurentian Bank, offers a 6.21 per cent dividend yield — high enough to act as a red flag.
Laurentian ran into mortgage security issues a few years ago and remains in the investor penalty box.
The unionized bank’s business has been diversified in the last five years with Quebec loans at 45 per cent reduced from 58 per cent while other provinces’ loan share increased.
Share price slipped from $49.45 to $43.96 in that time frame.
National Bank of Canada shares increased from $52 to $73.85 in five years as assets bloomed from $216 billion to $281 billion.
The Quebec-based bank dividend yields a respectable 3.85 per cent with 38 per cent of assets outside La Belle Province.
Only 27 per cent of income comes from loan interest with the rest from fees and transactions. Strong in wealth management, National has a small but growing specialty U.S. finance arm.
Alberta-based Canadian Western Bank took a hit after the oil price slump but less than one per cent of loans are oil and gas related. The dividend yields a reasonable 3.55 per cent.
In five years, loans have been diversified from 50 per cent in Alberta to 32 per cent as loans grew in other provinces. Leasing operations make up 18 per cent of revenues.
Assets grew from $22.19 billion in 2015 to $29.3 billon in 2019 while share price went from $23.56 to $33.28 in five years.
The newcomer to Canada’s smaller banks is Equitable Bank of Canada with one branch in Toronto.
An online bank, Equitable offers investors a lower expense ratio, wth none of the real estate and fewer employees than traditional brick and mortar banks have as costs.
Dealing mostly in mortgages and personal and commercial loans, Equitable assets between 2014 and 2018 grew from $12.85 billion to $25 billion.
Share price of this 1.26 per cent dividend yielder moved from $75.12 to $111.12 in five years.
With its lower cost structure Equitable can offer 2.41 per cent interest in savings — putting other banks to shame.
Not having a network of bank branches forces reliance on dealers for sources of deposits, a less than ideal situation, if dealer deposits dry up. Higher interest on savings is changing that reliance.
This column offers a brief synopsis of operations by the four banks, all of which deserve to be on investors’ watch lists.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at email@example.com
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.