Adjusted earnings per share (EPS) at Canada’s six big banks rose an average of 50.1 per cent in fiscal 2021. That increase contrasts with a 16.1-per-cent EPS drop in fiscal 2020.
Regulatory restrictions preventing Canada’s banks from raising their dividends were lifted late last year. Consequently, the banks, which have not increased their dividends since the first quarter of 2020 or before, have made up for the lack of increases since then.
In fiscal 2022 (which ends October 31), bank profits are expected to rise at a much more modest pace. Indeed, their average EPS is projected to rise just 1.4 per cent. What’s more, the banks trade above their historical average earnings multiples, so they are not cheap by that measure. Nonetheless, we believe they still offer decent risk-adjusted total return potential over the next few years.
■ Bank of Montreal (TSX—BMO) is forecast to earn $12.87 a share in fiscal 2022. That’s down 0.7 per cent from $12.96 a share in fiscal 2021. BMO traded recently around 11.5 times the 2022 estimate. These past five years, the bank’s average price/earnings (p/e) multiple was 11.2. Buy.
■ Bank of Nova Scotia (TSX—BNS) traded recently around 11.2 times the $8.29 a share that it’s forecast to earn this fiscal year. EPS is up 5.3 per cent from the $7.87 a share the bank earned in fiscal 2021. The stock’s average p/e ratio in recent years is 11.1. Buy.
■ Canadian Imperial Bank of Commerce (TSX—CM) traded recently about 11.2 times the $14.57 a share that it’s forecast to earn this fiscal year. That’s up 0.7 per cent from the $14.47 a share the bank earned in fiscal 2021. The stock’s average p/e ratio is 10.1. Buy.
■ National Bank of Canada (TSX—NA) shares traded recently around at 11.3 times this year’s forecast earnings of $9.07 a share. That’s up 1.0 per cent from the $8.98 a share the bank earned in fiscal 2021. The stock’s average p/e ratio is 10.3. Buy.
■ Royal Bank of Canada (TSX—RY) shares traded recently about 13.2 times this year’s forecast earnings of $11.13 a share. That’s down 0.5 per cent from the $11.19 a share the bank earned in fiscal 2021. The stock’s average p/e ratio is 11.8. Buy.
■ Toronto-Dominion Bank (TSX—TD) shares traded recently about 13.0 times this year’s forecast earnings of $8.09 a share. That’s up 2.3 per cent from the $7.91 a share the bank earned in fiscal 2021. The stock’s average p/e ratio is 11.8. Buy.
All of the banks, then, trade above their historical average multiples. Scotiabank, however, trades at the smallest premium to its average multiple. It’s also the highest-yielding stock of all the big banks. All told, we believe it offers one of the stronger total return potentials of the top six in the next few years.
This is an edited version of an article that was originally published for subscribers in the February 18, 2022 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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Money Reporter •3/21/22 •