Investment Thesis
In March 2020, in the midst of the market crash, I took a close look at the value and dividend characteristics of Canada's Big 5 banks. At the time, Canada's 5 largest banks: Royal Bank of Canada (RY), The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (NYSE:BNS), The Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM) were all trading at deep discounts to their historic valuations. The combination of low share prices and continuity in dividend payments had resulted in dividend yields that averaged 68% above 5-year averages in March 2020. Five months later, this average yield premium has closed to approximately 30% - about half of the yield premium from March 2020. While the sector has recovered somewhat, the Bank of Nova Scotia has lagged its peers in recovering. For long-term dividend growth investors, Scotiabank's current level offers great value and an attractive yield.
Value in a Great Sector
For dividend growth investors with long-term time horizons, the Canadian banks tick a lot of boxes. These companies have stable business models in a protected sector with strong dividend growth records. With the recent market turbulence caused by the global pandemic, prices of bank stocks have reached some of their most attractive levels since the global financial crisis. I like the Canadian Banking sector in general, and it is hard to go too far wrong with any of the Big 5. In particular, RY, TD, and BNS are some of my core long-term holdings. With an interest in both dividend growth and value, I have recently been adding to the Bank of Nova Scotia and Toronto-Dominion Bank due to their compelling current valuations and attractive dividend yields. From a value perspective and dividend profile, the current standout in this group is the Bank of Nova Scotia.
