3 Best Big Canadian Bank Stocks to Own for the Long Haul (2024)

Investors should aim to buy shares of these big Canadian bank stocks on dips and hold for income and long-term returns.

I thought it’d be interesting to talk about Canadian banks as the sector has rebounded recently in a Santa Claus rally. A representation of the sector is BMO Equal Weight Banks Index ETF, which appreciated about 18% from the bottom of late October.

History shows that two-thirds of long-term returns come from dividends. And investors must hold shares of dividend stocks to earn their dividends. Big Canadian bank stocks are excellent choices for any investor’s long-term diversified portfolio. The banks have paid safe dividends for decades and increased their dividends over time.

Here are some of the best to own for the long term. It goes without saying that investors should aim to buy on dips – particularly when dividend yields for the respective bank stocks are attractive.

RBC stock

Royal Bank of Canada (TSX:RY) is a good choice for quality and resilience. The stock just climbed north of 22% from the October bottom. Over the years, it has built a diversified financial services business and has become a banking leader in Canada.

Its core business segments are personal and commercial banking (39% of fiscal 2023 revenue), wealth management (31%), capital markets (20%), and insurance (10%). Its core operations are in Canada (about 59% of revenue) and the United States (25%).

In the last two recessions, RBC had a bit of a setback in its earnings and was able to at least maintain its dividend. Importantly, the business performance recovered within a reasonable amount of time. The bank’s 10-year adjusted earnings per share growth rate is close to 7.5%, which was the key driver of a dividend growth rate of close to 7.8% in the period.

At the recent price of $132.33 per share, the stock offers a dividend yield of almost 4.2%. Assuming more conservative earnings growth of 6% per year, buyers of the stock today can approximate long-term total returns of about 10% per year. It’s not a bad buy here, but investors may be able to get a better deal on a dip.

CIBC stock

If you’re looking for more income, Canadian Imperial Bank of Commerce (TSX:CM) should be on your list. The bank made an incredible comeback rally of almost 32% from the bottom in October! Even after the rise up, the bank stock still provides a nice dividend yield of almost 5.8%. This is partly thanks to the bank increasing its dividend last month. For your reference, over the last 10 years, it increased its dividend at a compound annual growth rate of 6.1%.

CIBC is the fifth-largest bank in Canada. Its core businesses are retail and business banking, wealth management, and capital markets. At writing, the bank stock trades at $62.53 per share and is fairly valued trading at a price-to-earnings ratio of about 9.3. Even when assuming a conservative earnings growth of 4% per year, it can still deliver total returns of roughly 10% per year. Cautious investors can aim to buy the stock whenever it yields north of, say, 6.5%.

National Bank of Canada

Interestingly, the best-performing big Canadian bank stock is the sixth-largest bank in Canada – National Bank of Canada (TSX:NA). Specifically, it outperformed its bigger peers over the last 3, 5, and 10 years. Its operations are concentrated mostly in Canada. The bank generates about 80% of its revenues in Canada, including 50% in Quebec.

This graph illustrates the 10-year total returns of the bank stock and the Canadian banking sector.

NA and ZEB 10-Year Total Return Level data by YCharts

NA’s recent price of just over $100 per share is up almost 19% from its October low. The fairly priced stock offers a good dividend yield of 4.2%. Its 10-year dividend growth rate is about 8.9%. Buying the dividend stock on dips may be the way to go to strive for the highest long-term total returns in the sector.