February Stock Considerations

As another new month approaches I am reminded to, once again, look at my portfolio holdings and decide where to deploy my fresh capital for the month. Looking back at the month of January, I have seen additional declines in the large Canadian bank stocks. No doubt, this was in direct correlation to the continued weakness in oil prices and the seemingly linked nature of the Canadian oil sand companies and Canadian banking stocks. It seems that none of the large Canadian banks were spared as declines in The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS), Royal Bank of Canada (RY), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM) were rampant. Of course, as a long term dividend growth investor, I simply see this continued weakness as further opportunity for my fresh capital to provide above average current yield while continuing to participate in continued growth among the dividend distributions. Being able to average down on some of my current holdings doesn’t hurt either.

 

In previous similar articles I often presented a relatively long laundry list of potential names to invest in the upcoming month. However, going into February I feel fairly confident in having a pretty narrow list of names I’d like to invest in. With the current downward trend the large Canadian banks are currently experiencing I am looking to add, in order of preference, to my current holdings of RY, BNS and TD.

 

Royal Bank of Canada (RY), with a current yield of 4.18% made headlines recently with the announced acquisition of Los Angeles, CA based City National Corporation (CYN). No doubt, RY, with an almost exclusive presence in Canada was eager to expand its U.S. footprint and saw CYN as a perfect fit. RY, with a current PE of 12.50 and a forward PE of just 10.80 seems well valued at current prices.

 

My other consideration is to continue to average down on my Bank of Nova Scotia (BNS) holding as continued weakness in the stock price has resulted in a very attractive 4.32% yield. BNS, like RY also seems well valued at current levels with a current PE of 11.27 and a forward PE of 10.30.

 

Finally, I’m considering The Toronto-Dominion Bank (TD) with a current yield of 4.01% and a current PE of 12.68 that is slightly lower than its five year average. Like the two banks mentioned before TD seems well valued at current price levels.

 

Of course, I always mention that Mr. Market may thwart even the best laid plans and may present an investment opportunity that I am not currently considering. Such is the fickle nature of the market. Sometimes you never really know where the next great investment opportunity will come from. After all, no one could have predicted the dramatic collapse in the oil market going back to the summer of 2014.

 

What do you think about my February stock considerations? Are any of the names mentioned on your watch list or portfolio? Please let me know below.

 

Disclosure: Long TD, BNS, RY

46 thoughts on “February Stock Considerations

  1. This list makes complete sense to me Keith, these seem to be some of the best values in the market at the moment. Wow, I had no idea RY acquired CYN, very interesting being from LA. I could open an account with them if I were to invest now πŸ™‚ I saw declines in BNS with you, but am still very happy with the long term picture. I’ll be eagerly watching what you decide on. Have a great weekend and thanks for sharing your thoughts!
    Ryan recently posted…Portfolio Growth Update: January 2015My Profile

    • Hi Ryan,

      It seems, to a less dramatic extent, that the Canadian banks are following in the foot steps of the oil companies in their decline. I know that many dividend bloggers have bought into the oil patch in earnest and wonder if the same will occur with the large Canadian banks. The RY/CYN acquisition made some news in recent weeks and no doubt is RY’s attempt to diversity out of Canada a bit just and BNS and TD have done in the past. As always I thank you for stopping by and sharing your thoughts.

  2. I’m 100% with you. In january i averaged down on Royal Bank and now have a good position with RY. I’m looking into adding to BNS and TD if prices remain this low and especially if they go lower.

    • Hi $25000 dividends,

      Glad to hear an opinion that coincides with mine. My order of preference for February puts RY at the top of my list. Looking at how much BNS and TD have dropped from their summertime highs puts you in a great position to add to those as well. As a U.S. investor I know we only hear about the large American banks and rarely about international banks, especially Canadian. This is unfortunate as the large Canadian banks have performed quite well for many decades and are all very committed to their shareholders and dividend distributions. I wish I had considered them years earlier. Thank you for stopping by and commenting.

    • Hi DD,

      Well, I like the average down approach too as long as I believe in the long term prospects of the company I invest in and their potential to distribute future dividend payments. With regard to the large Canadian banks, I feel confident in both their long term prospects and ability to continue their dividend payments. These declines simply provide us with better buying opportunities in terms of valuations and current yield and there seems to be a buzz among the dividend bloggers in this sector as many are already loaded up on energy stocks and looking elsewhere to invest. As always, I appreciate your comment.

    • Hi AG,

      Clearly you are a fan of the sector as your portfolio contains all five of the major banks that I have mentioned. I agree with you that RY seems to be the current best play in terms of value and is at the top of my February buy list. I wonder if we’ll see the same excitement for this sector as we have seen in the oil patch among the dividend bloggers. Thank you for stopping by and sharing your thoughts.

    • Hi AC,

      The large Canadian banks operate as a quasi-monopoly in Canada with large government support and back stops in place to prevent similar meltdowns that happened in the U.S. Sure oil is depressed and there is chatter about Canadian household debt at record highs and a real estate bubble as well as a weakened currency in recent weeks but all these headwinds have simply brought about better buying opportunities presenting some pretty decent valuations and high current yield. Take a read of an article I wrote a while back, Canadian Century Club Dividend Stocks. This might pique your interest in Canadian banking stocks even more. Thank you for commenting. It’s always appreciated.

    • Hi DD,

      The financial sector, in general, has quite a few companies that are sporting some pretty compelling valuations right now. Banks, insurers and, as you mentioned, asset managers alike. Have you taken a look at BX as well? I started reading a bit more about the asset management space and BX looks like anther interesting pick in the space. In either case, financial names look interesting. Thank you for stopping by and commenting.

    • Hi DGJ,

      Well, I was one of those dividend investors that added to my TD position in January. And as you can see it’s on my short list for February. For quite a few years I have been quite light in the financial space which is why I have been adding to my Canadian banks the last several months. I have one other American bank I might consider, USB. I think that the Canadian banks can offer some diversity for the dividend investors who got really heavy in the oil patch the last several months as many names in the sector are looking quite attractive. Thank you for sharing your thoughts.

  3. Nice list of Canadian bank stocks! I’m also considering some of them. If you look at my 4 portfolios on my blog, none of them is a financial company and none of them a technology company either, as of now. However, these Canadian banks are doing fine, despite some hiccups. I like them along with WFC.

    Best,
    PIM
    Passive Income Mavericks recently posted…My Goals for 2015My Profile

    • Hi PIM,

      I’d say that for the last seven years or so I only owned one bank in my portfolio, WFC. Looking for additional exposure I began loading up on the large Canadian banks. The only other American bank I would consider is USB. I can understand why many would be reluctant to invest in any banking or financial sector stock after the meltdown of 2008 and 2009 but one cannot discount the resilience of the Canadian banks during the financial crash as well as their very, very long dividend distribution history. Clearly, the Canadian banks have a very favorable and dividend friendly policy. Perhaps it’s time to take a look at this space? Thank you for stopping by and commenting.

  4. Banking is one of the smaller sectors in my portfolio and I had completely forgotten about the Canadian banks. It didn’t occur to me that the Canadian Banking Sector could have headwinds when oil is low. People borrow money from somewhere and when oil falls people will unfortunately loose jobs, which could potentially lead to debt repayment issues. I researched the Canadian banks previously and like the conservative management/leverage of them vs US banks.

    Plus banks are under represented in my portfolio, will have to take a look!

    Take care!
    ILG recently posted…January HighlightsMy Profile

    • Hi ILG,

      Though many of the large Canadian banks have released statements downplaying the role the price of oil has on their overall operations one cannot fully discount the influence of lower crude prices on the share prices of these companies. The reality is that we have been here before and the Canadian banks survived previous lower oil prices fairly well. Another reason for the decline in share price can be attributed to the weakness in the Canadian dollar as of late. Lower oil, weakened Canadian dollar, relatively high consumer debt in Canada and a potential real estate bubble pop have all contributed to short term headwinds for these banks. All this translates to some pretty fine, conservative banking institutions that are selling at some very compelling valuations coupled with an above average current yield. As always, I appreciate you stopping by and commenting.

    • Hi Tawcan,

      I have been noticing a buzz around the Canadian banks in recent weeks. Clearly, more buys are being made in the space as prices have been falling from the summertime highs. I’m curious to see which of the dividend bloggers will be buying into the Canadian banks in February. Thank you for commenting.

  5. Before reading post from other bloggers, and particularly Canadian bloggers like yourself, I was not very familiar with Canadian banks. After reading various posts and doing some additional research myself, I now understand the interest that surrounds these Canadian banks. All three mentioned are on our watch list now. In fact, we even initiate shares in TD this past month. Who knows, we may either add to our current TD holding or even add a second Canadian bank to our portfolio in the coming month. πŸ™‚

    Thanks for sharing your February considerations. AFFJ
    A Frugal Family’s Journey recently posted…RECENT BUYS (NYSE: NOV and CVX)My Profile

    • Hi AFFJ,

      It seems that there are two camps among the dividend blogging community. Those that know about and currently invest in large Canadian banks and those that are just learning about why they are so popular. I wish I knew about these amazing banks years ago instead of just six months ago. With a considerable slide from their summertime highs and an especially poor performing January, the Canadian banks are looking especially attractive these days. Happy to be a fellow TD shareholder with you. January saw me add to my TD position as well. Look forward to seeing what you ultimately decide to do in February. Thank you for commenting.

    • Hi AI,

      I know that energy has stolen the headlines in recent months with its dramatic decline and seemingly every dividend investor has been buying up oil patch stocks but the financial sector also has some pretty good values these days too. Insurance companies such as AFL, CB, TRV come to mind as well as a couple American banks I like such as WFC and USB and of course the large Canadian banks, TD, BNS, RY, BMO and CM. I still feel very confident in the long term prospects of the Canadian banks and see these current headwinds as providing some good buying opportunities. Thank you for commenting.

  6. I think all three look good. I somehow prefer the BNS and our good old royal friends over TD, although TD is good too. I love how the Canadian banks are solid and conservative, compared to some of the more random banks we have available to us here in the UK.

    I don’t own any bank stocks, and got burned when I did in the past. I learnt my lesson though, think I’d probably invest in Santander but don’t want to pay the withholding tax to Spain, so would probably just buy HSBC bank instead in my UK portfolio.

    Cheers
    M recently posted…Are Stocks Cheap Right Now?My Profile

    • Hi M,

      I fully understand you being hesitant when it comes to investing in banking stocks. You, along with millions of others have been burned in recent years with that sector and I fully get it. In fact, since I became a dividend investor about seven years ago I only owned one bank in my entire portfolio, WFC. That was until last summer when I was introduced to the large Canadian banks and saw how solid and resilient they have been for over a century. Sure, there is risk with any stock we buy no matter how “solid” it may appear but that’s why we own a basket of stocks to protect us from those inevitable mess ups that come every now and then. The key is to limit the damage. While I’m currently expanding my financial exposure in my portfolio I do not intend to make it a large sector holding. I wish I knew more about HSBC to offer an opinion but from the little I know it seems like a good play. As always, thank you for stopping by and commenting.

  7. Thanks for sharing your thoughts. what do you think about Canadian bank ETFs like ZEB. would you consider this on your portfolio?

    • Hi Dipu,

      As you can see in my portfolio I do not own any ETFs. I can understand the allure of simply buying a basket of ETFs and add tremendous diversity to a portfolio with just a few holdings. However, I am a dividend growth investor and wish to capitalize the the power of compounding dividends from individual stocks instead. The current yield on any of my current choices is sufficiently higher than that of ZEB. I don’t dismiss the notion of ETFs or mutual funds and know that this method of investing suits many individuals just not me. Thank you for stopping by and commenting.

    • Hi TBDI,

      Thanks for sharing your dividend picks for the up coming month. I too love the consumer staples very much as they are the largest sector in my portfolio but I’m focused on the value plays of the Canadian banks for now. I’d love to add more to my JNJ but not at current levels. Perhaps in the coming months with the stronger dollar and weaker sales being reported among the consumer staples a better buying opportunity will present itself. Thank you for stopping by and commenting.

  8. The Canadian banks are attractively valued and their yields are nice. I can’t get myself to buy banks ever though even if they are attractively valued. The financial crisis has spooked me.

    • Hi Youngdiv,

      I can understand your reluctance to enter this space and I felt the same way as you till I learned about the Canadian banks. The large ones, TD, BNS, RY, BMO and CM have all been paying dividends for well over 100 years and are built upon very conservative foundations. I understand that no company is perfect and can falter at any time but I do recognize long term growth and long term dividend commitments. During the financial crisis when every U.S. bank was cutting or eliminating dividends, the Canadian banks simply maintained them. Not that long ago JNJ was having issues with recalls and poor sales while ten years ago MCD was trading in the teens. Look at all the high flying oil stocks of last summer and where they are today. What I’m trying to say is that no company nor sector is ever fully immune from rough times. All you can do is limit your exposure to a level you are comfortable with and have a long term perspective. At one time GM was as blue chip as they come till they had to file for bankruptcy. Just my two cents. Thank you for stopping by and commenting.

    • Hi Vivianne,

      Thanks for sharing your BMO buy with us. BMO along with CM are on my watch list but I doubt I’ll be buying into those names anytime soon as my exposure to TD, BNS and RY seem more than sufficient. I do agree with you that at some point the banks will recover. For now there are a lot of headwinds facing the Canadian banks including lower oil prices, low interest rates, lower Canadian dollar and a potential real estate bubble ready to pop. The way I see it, everything runs in cycles. Several years ago the U.S. dollar was very weak. In fact the Canadian dollar was worth more. Interest rates were higher, etc. Every country, sector and business goes through boom and bust cycles. These bust cycles just present us with better prices and higher yield. Thank you for stopping by and commenting.

  9. Cant go wrong with the Canadian banks. One correction for RY: its not limited to Canada in exposure. The bank has about 2/3 of its revenue from Canada. The other 1/3 is evenly split between US and Intl. So, the CNY exposure will increase that exposure to US…which should do them well.

    I have them on my watchlist too. With PE in the 11-12 range and Forward PE in 10s, its hard to pass up.

    Best wishes
    R2R
    Roadmap2Retire recently posted…Chatter Around the World – 81My Profile

    • Hi R2R,

      I’m sure you already are seeing a lot more buzz surrounding the large Canadian banks among the dividend bloggers. As you mention, a low PE and even lower forward PE coupled with some pretty juicy yields makes for a very compelling investment.

      I think many are applauding the CNY takeover for the continued expansion and larger footprint outside of Canada. I agree with you that going forward this buyout should serve them well. Thank you for stopping by and commenting and shedding additional light on the Canadian banking world and RY.

  10. Looks like you can look forward to some good yields if they stay on course to increase earnings ad dividends in the years to come. I like the attractiveness of Canadian banks as well, but as of yet no purchases on my end. We will see how it pans out, I might add RY as getting into the US market might give it a boost.
    EL @ Moneywatch101 recently posted…Why I want to be Free of Debt ForeverMy Profile

    • Hi EL,

      At present there is still plenty of cash flow to cover those relatively high dividends. That being said, I don’t expect much of a dividend raise in 2015 for any of the banking stocks but I guess the trade off is a high current yield. We’ll see how continued weakness in oil and the Canadian dollar will impact earnings going forward. Isn’t this the kind of environment we are all looking for? A place where we can pick up traditionally solid companies at much better prices and valuations. Seems like energy isn’t the only place looking attractive. As always, thank you for stopping by and commenting.

    • Hi DD,

      I think banking has spooked many long term investors which is why many of the dividend bloggers have limited exposure to the sector. I can understand the hesitation but I wouldn’t dismiss the entire sector. Just get some exposure that you would feel comfortable with. There’s no denying the very long dividend history of the large Canadian banks and their conservative nature which is why I feel comfortable owning them in my portfolio. In general, my consumer staples will be my largest sector but I wanted some additional finance exposure as well. Thank you for commenting.

    • Hi BSR,

      You echo the same sentiments as a lot of other dividend investors regarding the solid nature of the large Canadian banks. Sure they have faltered in recent months but what company doesn’t experience a misstep in their operational history. I still feel quite confident in their long term ability to continue to operate profitably as well as continue to pay out dividends for decades to come which is why February will most likely include a Canadian bank purchase. Thank you for stopping by and sharing your thoughts.

    • Hi dividenddreamer,

      Well I have started owning a few shares in each of the three large Canadian banks with TD, BNS and RY. While I still would like to add BMO and CM eventually I don’t see that happening for a while as I also own WFC and feel that four banking stocks is more than enough exposure to the sector. Perhaps when my portfolio grows really large I’ll look for additional diversity. Thanks for commenting.

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