After reading a couple of Derek Foster’s books a couple of years ago, “Stop Working, Here’s How You Can” and “The Lazy Investor”, I got even more inspired to take a hold of my financial future. Shortly after reading both books (what I consider mandatory personal finance reading for any investor…) I researched some of the stocks he mentioned in his books, like Bank of Nova Scotia, to review their financials and validate if this was something I wanted to be an owner of. Well, it certainly wasn’t a long research project because I quickly fell in love with Canadian bank stocks and here’s why…
1. Canadian banks are some of the greatest dividend plays available for dividend growth investors. They pay-out consistently and tend to increase their dividends often.
2. Bank stocks along with their financial cousins, insurance companies, comprise about one-third of the TSX index, making them a stalwart in the Canadian economy (and in any investment portfolio).
3. Unlike their neighbours to the south, Canadian banks are well capitalized, managed and regulated. They continue and consistently raise incredible amounts of financing (partly through clients fees) to support their operations.
As a dividend investor, # 1 is very important to me but so are # 2 and # 3 as its demonstrates long-term safety, security and stability. Over the last year, I’ve sold all my mutual fund holdings and replaced them with ETFs that hold at least a few Canadian bank stocks. In recent years, I’ve also purchased some common shares of many of the “big five” banks. With the market on the upswing, it’s easy to be a fan but even through the most recent credit crisis, it was hard to go wrong with these guys. Three of the big five – BMO, CM and RY delivered double-digit returns (including dividends) for the twelve months ending July 31, 2009* *Reference Globe and Mail. Sure, not all bank stocks had these returns but you might recall almost no stock did throughout early 2009. Do I need to own all “big five”? Should I also make a play for NA or Laurentian down the road? Maybe. Yet for now, I’m thankful to own what I have, holding some of these great stocks amongst others in my portfolio. Like any good relationship, there will be ups and downs but I’m confident we’ll be able to ride out financial storms together both in the short and long-term.
How about you, are you a big fan of Canadian bank stocks?