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Published: October 13, 2009
The financial crisis felled some banks.
Others were left crippled and may never recover. Still others
were hardly affected at all.
Those institutions are the ones in the best position to profit
going forward.
Investors should look at these stable dividend payers for
reliable income and capital appreciation.
Canada's banks, for the second year in a row, were rated the
strongest in the world by the World Economic Forum. Canadian
lenders once again scored top marks as the most solvent among
133 countries.
The United States, for its part, ranked 108th.
No Canadian bank has gone under for nearly two decades. None of
the country's banks has requested or received a government
bailout. Canada's banks also ranked 5th for investor protection
and 3rd for financial-market sophistication.
Canada has six major domestic banks that account for more than
90% of its bank assets. All but one of them, the National Bank
of Canada, trade on the New York Stock Exchange. Royal Bank
of Canada (NYSE: RY) is the country's largest lender by
assets, followed by Toronto-Dominion (NYSE: TD), Bank
of Nova Scotia (NYSE: BNS), Bank of Montreal (NYSE: BMO)
and Canadian Imperial Bank of Commerce (NYSE: CM).
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The forward price-to-earnings ratios of these
banks are all reasonable, from 11.5 to 13.5. Each of the banks
has grown its dividend during the past several years, and at a
healthy rate. Dividends yields range between 3.8% and 5.6%.
The Bank of Montreal, one of the
banks with a higher yield, offers
investors the long view of Canada's
banking strength. The Bank of
Montreal was established in 1817 and
has paid dividends -- get this --
since 1829.
This $27 billion bank has about
1,000 branches in Canada and a
presence in the Midwestern United
States through Harris Bank, which
now accounts for about 10% of the
company's revenue.
The bank's size and position put it
in a great position to continue to
grow. The company's commercial
banking segment, its largest
business unit, has grown its revenue
about +8% this year on an annualized
basis. Deposits are up +14% from
2008. And personal loans have grown
from C$25.6 billion in 2008 to
C$29.2 billion this year.
For the third quarter of 2009, Bank
of Montreal earned C$0.96 a share
versus C$0.98 for the same period in
2008. Although this number is
slightly lower, it's a big
improvement from previous quarters.
In the first quarter, it earned
C$0.39. And in the second, it earned
C$0.76.
All signs point to these numbers
continuing to improve as the economy
improves, and I think the Bank of
Montreal is set for continued
market-share growth. With a 5.5%
yield and a history of increasing
its dividends, this a great play on
the strength of Canadian banking.
-- Anthony Haddad
Staff Writer
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