3 bank stocks I plan to buy more of in 2018
The Bank of Canada has hinted more interest rate increases are coming in 2018, and that means opportunities to invest. Personally, I like bank stocks and the financial sector if rates rise.
You see, historically, financial gurus tell investors to be selective with certain sectors such as utilities and Real Estate Investment Trusts (REITs) in a rising interest rate climate. You can see examples of that here.
Then again, interest rate increases can be beneficial to some sectors. One big benefactor is the financial sector – think banks and life insurance companies.
In a rising interest rate environment that may hurt some sectors short-term (even though I intend to buy more of these Canadian utility stocks to balance out my portfolio) I’m considering buying more of these bank stocks in 2018.
Bank of Montreal (BMO)
You probably read in a recent Then and Now post I’ve owned Bank of Montreal (BMO) stock for some time. I bought Bank of Montreal because it’s a core holding of most Canadian Exchange Traded Funds (ETFs) and big bank equity mutual funds – I figured why not own what most funds hold dear.
I also bought BMO because I wanted to participate in the capital growth and dividend raises it has historically delivered shareholders – I believe similar growth could occur in the future. (Note: BMO has paid dividends 1829. Some stocks have paid dividends for generations).
Thanks to some recent Tax Free Savings Account (TFSA) transactions I now DRIP this stock in my discount brokerage account (reinvesting (1) share earned via dividends every quarter) but I’m looking for more. Depending upon the price point I will consider buying more BMO stock in 2018. Until that time, it’s great to know BMO quarterly dividends will continue to buy more shares in my account, and more shares in my account will continue pay out more dividends throughout the year. Money that makes money is compounding – working for us – so we don’t have to on our way to this lofty goal.
Bank of Nova Scotia (BNS)
We don’t yet own enough Bank of Nova Scotia (BNS) stock to reinvest dividends paid inside our TFSAs, but that doesn’t mean as cash builds up inside this account I’m going to ignore this stock.
I started buying BNS via a full dividend reinvestment plan in late-2009 and into early-2010, in the aftermath of the financial crisis. I’ve been buying this stock periodically ever since. Why?
I like the diversification that comes from owning BNS. Over the past few years, Bank of Nova Scotia has been working hard to expand into Latin America. Access and a footprint into that Pacific Alliance region amongst Chile, Columbia, Mexico, and Peru means BNS has a client base that can approach 200 million people. Bank of Nova Scotia is now arguably Canada’s most internationally diversified bank, with a presence in 50 countries, primarily in Latin America, the Caribbean but also Asia.
BNS has also provided a tidy dividend history to shareholders along with some impressive price appreciation over the last 8-10 years. I think they’re due for another dividend hike in a few months.
TD Bank (TD)
This bank stock is another dividend stalwart in Canada despite the bad press it may receive now and again. You see, fairly recently, longtime TD Bank employees went public – citing “incredible pressure” to squeeze bank profits from customers. While sales tactics and heavy marketing is not new to the financial sector, based on those public reports it did appear TD Bank went too far. Hopefully management has stepped up. I don’t believe any employee should feel genuinely feel insecure, threatened, and very stressed about their long-term job prospects if they don’t follow party-line.
Even with this negative news, it appears shareholders haven’t wavered from owning this stock. To be honest, neither have I. I’ve owned TD Bank stock for years and will continue to do so. This is because like its direct competition, TD continues to expand beyond Canada’s borders. Thanks to this expansion, TD now generates some 25% of its bottom line from the U.S. – they have more retail branches there than they do in Canada.
Like other banks mentioned above, price appreciation over the years and dividend increases have been attractive. I believe we can expect to see a 5% increase in TD’s dividend in 2018 – and I intend to buy more TD stock before this happens.
Canada’s biggest banks are likely to continue deriving most of their juicy earnings domestically. However, a growing percentage of their profits comes from operations south of the border and other international markets. This is good news for shareholders like you and I. These companies are increasing their cash flow over time and they are passing along some of their profits back to shareholders via dividend increases. I intend to remain one of them for all three of these stocks mentioned.
What bank stocks or financial sector stocks do you have your eye on in 2018?