Play the Falling U.S. Dollar by Buying These 6 Canadian Banks

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Includes: BMO, BNS, CM, RY, TD
by: Investment Underground

by Gerry Greer, Guest Editor

How do you protect wealth while the U.S. dollar falls? This is a concern for all American investors. The internet is full of sites promoting gold (NYSEARCA:GLD) or silver (NYSEARCA:SLV).

Gold has relative modest volatility. Silver’s fall going into the financial crisis was greater than gold's. Since the market’s recovery started in the fall of 2009, both have seen maximum volatility in the range of about 20%. If the investment made is in the ETF, the security is bought and sold with the push of a button. If the investment is held in the physical metal, the sale is difficult in a timely manner.

Trading in gold or other currencies is a trade relative to one another. Currently the Canadian dollar is trading slightly higher than par versus the American dollar. The Canadian economy currently leads the G8 economies in growth. GDP growth in 2010 was 3.2%, with .8% in the 4th quarter. For Germany it was 4% on an annual basis, however the 4th quarter was .4%. The U.S. had annual growth of 2.8. Due to a downward revision in the 4th quarter, it is difficult to analyze the quarter to quarter numbers.

The 2010 unemployment rates were 7.4% for Germany, 7.8% in Canada and 9% in the U.S. The problem with Germany's currency is having to share the currency with Greece, Spain, Portugal and Italy.

The Canadian banking system is dominated by 6 major banks, Royal Bank of Canada (NYSE:RY), Bank of Montreal (NYSE:BMO), Canadian Imperial Bank of Commerce (NYSE:CM), The Bank of Nova Scotia (NYSE:BNS), Toronto Dominion Bank (NYSE:TD) and The National Bank of Canada (NA.TO).

In the recent recession there was not a single bank failure in Canada. The last bank failures were in 1985, two western regional banks both started in 1975 failed. The previous failure was in 1923.

As we wrote here, we also think Toronto Dominion is taking market share away from Bank of America (NYSE:BAC).

All of the above mentioned banks pay excellent dividends. Listed below is a chart outlining dividends, yield, price to book, current price and analyst mean price objective.

Bank

Dividend in $ Canadian

Yield

Price to Book

P/E

Current Price $US

Price Objective

RY

2.00

3.35%

2.5

18

61.39

$65 CAN

BMO

2.80

4.56%

1.6

13

63.13

$68 CAN

CM

3.48

4.24%

2.5

14

84.43

$95 CAN

BNS

1.96

3.26%

2.6

16

61.89

$70 CAN

TD

2.64

3.18%

1.9

17

85.24

$93 CAN

NA

2.64

3.57%

2.0

12

73.83 CAN

$82 CAN

Click to enlarge

The Canadian banks are a relatively safe way to play an alternate currency, and get paid while you wait for the direction of the U.S. dollar to settle and offer a reasonable expectation for capital gains.

If you're looking for American banks outdoing their peers, see our article on four names we like here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.