Should Investors Consider This Dividend Stock Today?

Canadian banks continue to be hard hit, despite rebounding somewhat from March lows. A variety of factors have altered the valuation formulae for banks today. In this article, I'm going to discuss the pros and cons of owning one of the smaller TSX listed banking options for those interested in the Canadian financial space, National Bank (TSX:NA).

The near zero interest rate policy from the Bank of Canada has resulted in broad sector specific headwinds for lenders as net interest margins (NIMs) are reduced.

The assets that banks hold tend to become riskier relative to their bottom line impact. National Bank’s regional concentration exasperates some of this risk, as does the lender’s capital markets oriented business, which tends to be a bit more volatile than other segments as forecasting trading activity is tough.

That said, some analysts have pointed to the relatively high levels of loan loss provisions laid out by the National Bank as potentially conservative. This may indicate some upside on the near to medium-term horizon, should National Bank exceed expectations on loan losses moving forward.

As a regional lender, National Bank does have more regional exposure and therefore is more sensitive to stimulus packages helping areas of the economy that are of outsized importance to National Bank, making this stock a great leveraged recovery play.

Invest wisely, my friends.