2 top financial stocks to buy for growth and income

TD Bank has reported better-than-expected Q3 earnings and its US exposure should help offset potential Canadian weakness. TD is a full financial services provider to buy for growth and income. National Bank’s low P/E ratio and attractive yield also places it among the top financial stocks to buy.  

Despite expectations that slow growth would start to take a toll on financial stocks, Canada’s big six bank stocks have defied the skeptics by reporting decent financial results in their latest quarter. Among these banks was Toronto-Dominion Bank (TSX─TD), which reported that its third quarter adjusted diluted earnings per share were $1.20, ahead of analysts’ consensus estimate of $1.16, and up from $1.15 the same quarter last year.

TD Bank is the seventh largest bank in North America by branches and serves more than 24 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, U.S. Retail and Wholesale Banking.

U.S. growth puts TD among top financial stocks to buy

The bank’s decent performance in the latest quarter has added to moderately positive results so far this fiscal year. For the nine months ended July 31, 2015 (fiscal year ends October 31), TD made $6.6 billion (adjusted), or $3.47 a share, compared with $6.3 billion, or $3.29 a share, in the same period of 2014. The increase reflected higher earnings in all business segments and the translation impact of the stronger U.S. dollar.

Canadian Retail adjusted earnings rose 7.5 per cent primarily due to loan and deposit volume growth, wealth asset growth, higher insurance earnings and the full three-quarter impact of Aeroplan. U.S. retail adjusted earnings were up 5.8 per cent to $1.6 billion. Here, Canadian dollar earnings benefited from a strengthening of the U.S. dollar.

The outlook for TD is favorable, particularly because the U.S. is expected to continue to deliver superior economic growth relative to Canada into 2016. This should help offset any potential weakness in the bank’s earnings caused by economic problems in Canada.

With the recent pullback in its price, the stock trades at just 11.2 times the $4.59 a share TD will likely earn in fiscal 2015. Its current annual dividend of $2.04 a share yields 4.0 per cent. TD Bank is a buy for growth and income.

National is an attractively valued Canadian bank stock

National Bank of Canada (TSX─NA) turned in positive results in its latest quarter stemming from sound performance in its three main businesses. Personal and Commercial Banking recorded loan growth and stable margins, net income from Wealth Management posted double-digit growth, and Financial Markets performed well thanks to revenues from client-driven activity.

National Bank is the leading bank in Quebec and sixth among Canada’s big six bank stocks, with branches in almost every province.

The bank has delivered moderately positive results so far this fiscal year. For the nine months ended July 31, 2015, National Bank made $1.3 billion (adjusted), or $3.54 a share, compared with $1.2 billion, or $3.34 a share, in the same period of 2014.

Total nine-month adjusted revenues on a taxable equivalent basis amounted to $4.5 billion, up seven per cent from the previous period.

National Bank’s lack of foreign exposure may make it more vulnerable to shocks to the Canadian economy than most of the other big six Canadian bank stocks. But it’s attractively valued.

The stock trades at a low 8.9 times the $4.74 a share that National Bank should earn in fiscal 2015. The current annual dividend rate of $2.08 a share yields 4.9 per cent and puts it among our top financial stocks to buy.


Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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