Canadian Bank Stocks: A Discount or Too Dangerous?

Nearly every Canadian bank has come out to forecast a recession in response to the measures taken to supress the global COVID-19 pandemic. Canadian banks are stable and move into this crisis with strong balance sheets, but there is substantial risk if this economic shutdown drags for months – as some have projected.

The new Canadian bailout offers mortgage holders the option to defer mortgage payments, though interest will still accrue on the principal. Capital Markets divisions will take a huge hit in this quarter and likely next as we have descended into a bear market.

Bank stocks look like discounts right now, and yields are attractive, but value investors may want to stack gradually on the dips as there is no telling how long this crisis will press on.

Royal Bank (TSX:RY)(NYSE:RY), Canada’s largest bank, saw its stock has dropped 27% month-over-month as of close on March 20. Its shares last had a favourable price-to-earnings ratio of 8.7 and a price-to-book value of 1.4. Royal Bank currently offers a quarterly dividend of $1.05 per share, which now represents a 5.5% yield.

National Bank (TSX:NA), the largest bank in the province of Quebec, has plunged 42% over the past month. Its stock last had a very low P/E ratio of 6.6 and a P/B value of 1.1. The bank last paid out a quarterly dividend of $0.71 per share, representing a tasty 6.6% yield.

Scotiabank (TSX:BNS)(NYSE:BNS), which is often called “The International Bank”, has dropped 32% month over month. Shares currently possess a favourable P/E ratio of 7.3 and an enticing P/B value of 0.9.

Scotia last paid a quarterly dividend of $0.90 per share. This now represents a monster 7.2% yield.