Investors have loved investing in Canadian banks for decades now. They’ve delivered terrific total returns, dividend growth that’s hard to beat, and these banks have done a nice job diversifying operations away from being strictly in Canada.
For many investors, the question isn’t if they’ll invest in Canada’s largest banks. The question is which one they’ll buy.
Perhaps more investors should consider making an investment in National Bank of Canada (TSX:NA) even though it is smaller than our so-called “big five” banks. Think of it like investing in one of the big banks, but with several perks attached.
One of the biggest things National Bank has going for it is its valuation. 2016’s earnings were affected by some one-time items, but in 2017 the company is expected to earn $5.01 per share. That puts shares at just over nine times projected earnings.
It’s also cheaper from a dividend perspective. Shares currently pay investors 4.8%, which is more than the dividends paid by its larger peers. It has also grown the dividend by an average of 9% annually over the past decade.
National Bank is also earning superior returns on its equity, posting a 14.9% ROE in 2015. That compares to an average of 14.2% from its five largest competitors.
The company continues to ponder expanding outside of Canada by making equity investments in banks in Africa and Cambodia. Although these investments only total about $250 million so far--which isn’t much for a company with a market cap of $15.5 billion--investors can likely expect the international expansion plans to continue.
