After the recent pull back we find some stocks have become attractive. The Canadian banks look interesting at current levels. Take Bank of Montreal, for instance, has a yield close to 5%. The bank’s yield is 1.7 times the yield for the Canadian market. Given potential changes to capital requirements the Canadian banks have not increased dividends, despite rising earnings. If you take the current dividend rate and compare it to next year’s earnings they are paying out less than ½ of their earnings. The yield is well above GIC rates and is well supported by earnings.
In each of the last four quarters their earnings beat analysts’ estimates. The stock is trading at less than 12 times earnings this year’s earnings. Canadian banks have October year ends, so we are in the last month of the 3rd quarter. BMO is trading at less than 10 times next year’s earnings. Without getting technical, the Canadian banks have some of the best capital ratios in the world.
Disclosure: long BMO