3 bank stocks I plan to buy more of in 2018

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.

Wrap up

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?

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $600,000 now - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

33 Responses to "3 bank stocks I plan to buy more of in 2018"

  1. As you know five of my 13 holdings are banks, but I don’t own any TD, as it was always expensive compared to the others when I bought. But I don’t believe one would go wrong holding any of the 6 largest CDN banks. Try to buy on the dips.

    Reply
    1. I will try and buy when I can but I also need to save for a move 🙂 I like your call on owning all big 6 banks. We own all big 7 and have no intentions of selling. Big fan of BMO, BNS and TD.

      Reply
  2. I own both bmo and bns for a while, and for me, both capital gain and dividend growth, bns beats bmo a lot. Maybe it’s just timing. I bought both as a one time investment.

    Recently I bought some CIBC. I feel I already have too much exposure to Canadian banks. But I only own the big five actually.

    Reply
  3. Pretty decent chance of some dividend increases for some of the banks in the upcoming quarterly reports. I’d bet a x-large double/double and a donut that TD rises or a small double/double and a Tim Bit that CM, RY and BNS rise.

    Reply
  4. I hold ZSP in my TFSA so I don’t know if that’s the same thing as owning BMO stock. Some of my ETFs hold bank stocks but I don’t hold any. Aside from buying more CNR for my TFSA next year, I’m not really sure about buying any more stocks, though I get your point that it’s a good buy when interest rates are on the rise.

    Reply
    1. Hi Cheryl,
      Your post re:ZSP seems to indicate a bit of confusion in relation to directly holding BMO stock.

      Just to clarify, ZSP is an index ETF, issued by BMO, that holds all the constituent stocks (approximately 500) that form the US S&P 500 index. It doesn’t hold any BMO stock but it does have several US bank stocks as part of it’s holdings. However, you do say that you have other ETFs that hold bank stocks. If one of those ETFs is an index fund that tracks either the TSX exchange or the Canadian banks or Cdn high dividend stocks, then you would likely have BMO shares within that ETF.

      ZSP is a great holding and certainly adds to the diversification of your portfolio.

      Reply
    2. Like I mentioned above Cheryl, I think ZSP is a good BMO product for the S&P 500.
      https://www.bmo.com/gam/ca/advisor/products/etfs?fundUrl=/fundProfile/ZSP#fundUrl=%2FfundProfile%2FZSP

      In fact, I also like these U.S. dividend ETFs for growth and income:
      https://www.myownadvisor.ca/top-u-s-dividend-etfs-for-your-portfolio-2016/

      Owning ZSP is not the same thing as owning the bank stocks directly, for BMO, BNS and TD like I do. Most Canadian equity ETFs hold BMO and other bank stocks, which means the owners of those ETFs hold units in those companies indirectly.

      The best time to buy stocks like these, in my opinion, is when interest rates are low AND prices are low. Both rates and prices are inching higher I suspect this year. It could be a great year to be in these companies but it’s very hard to predict the future!

      Reply
      1. Well mostly I’m saying I don’t own any Canadian bank stocks directly nor plan to. I own another ETF – XEI – and that one has Canadian bank stocks including BMO and BNS. I also hold VCN which holds the 3 mentioned bank stocks in their top 10. Generally speaking I don’t even like BMO or TD, though it didn’t stop me investing in the ZSP but that was to increase my US exposure and after research I felt it was a good fit for my TFSA.

        Reply
        1. BMO’s ZSP is a great product. iShares XEI is good for income. VCN is good for growth. Overall, good picks although there is some overlap with XEI and VCN as you know – if you look at the top-10 and top-20 holdings of each.

          Reply
  5. We are in the withdrawal stage of our lives but we still hold substantial amounts of CM, RY and TD. Those dividends continue to purchase lots of double, doubles and fruit and fibre muffins! (: We are a little more health aware at our age Lloyd. LOL.

    Reply
  6. Pretty safe bets and definitely good candidates for dividend increases. Was in South America recently and it was very interesting to see a big presence by BNS in Chile even in some remote but prospering locations and also in the Caribbean, Costa Rica.

    Reply
  7. Happy new year Mark.

    Glad to hear you’ve finally resolved your change of housing decision. Better move fast though as I’m sure you’ve heard that the BOC upped interest rate a quarter point this morning with a couple more expected later this year.

    As regards bank stocks, I think you’d be hard pressed to find a Canadian who doesn’t hold at least one Cdn bank stock. Even those who just hold a TSX index fund.

    Reply
    1. Yeah, I’ll have part 3 on the housing dilemma post this winter but to be far, happy to have made a decision even though short term there are more costs involved. Such is life.

      Yes, re: BoC decision. Not surprised and I suspect one more rate hike will occur in 2018. As long as my wife and I can keep our jobs, we should be fine to absorb interest rates of 5-6%.

      Agreed about your comment with any index fund. We WANT bank stocks to do well in Canada! Don’t we? I do 🙂

      Reply
      1. Wouldn’t surprise me if there are 2 more hikes this year, if nothing big happens like a nafta failure. Most analysts think this.

        Like Lloyd I would be fine if prices came down at least for a few years but keep raising dividends. Would like to buy more.

        Reply
  8. Hi Mark,
    Good info as always. Thanks! How come you don’t mention RY on this blog or as your favorites? RY has been stable to and is increasing dividends

    Reply

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