A stock priced at $60 is not necessarily cheaper than a stock priced at $70. Stock prices are relative. It is like all stocks are priced in different currencies and you need to know the currency exchange rate to determine if a stock is relatively cheap or expensive. That is you need a common point of reference.
One simple way is to use the dividend yield. So if you wanted to find the cheapest, say bank stock, you could look at the dividend yield of all the banks and the one with the highest dividend yield would probably be the one that is relatively cheaper. This is not an exact science.
Below I have listed all the big five Canadian banks and ordered them by dividend yield. For dividend yield, the higher the yield generally, the lower the relative price. The other ratios I have looked at are Price/Earnings, Price/Sales and Price/Book Value. For the other ratios, generally the lower the ratio is the lower the relative price.
The Bank of Montreal has the highest yield so is the cheapest as far as yield goes. However, the CIBC has a lower P/E Ratios, so that on a P/E Ratio basis it is the relatively lowest priced bank. The price per share is the highest of the 5 banks. I pulled these figures from a website on March 23, 2014.
| Stock | Symbol | Div Yield | P/E | P/S | P/B | Price |
| Bank of Montreal | TSX-BMO | 4.16% | 11.7 | 2.9 | 1.7 | $73.05 |
| CIBC | TSX-CM | 4.09% | 10.4 | 2.9 | 2.3 | $95.88 |
| Bank of Nova Scotia | TSX-BNS | 3.95% | 12.4 | 3.6 | 1.9 | $64.86 |
| Royal Bank | TSX-RY | 3.94% | 13.0 | 3.3 | 2.3 | $72.16 |
| Toronto-Dominion Bank | TSX-TD | 3.65% | 14.3 | 3.9 | 1.9 | $51.54 |
On my other blog I am today writing about TransAlta Corp. (TSX-TA, NYSE-TAC) ...continue...
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
These yields are all wrong. TD @ 1.88% should have tipped you off. If you didn't notice this... I need to stop reading this site.
ReplyDeleteYou are right I should have noticed I had the wrong yields because they were low, especially the one for the TD bank. I have updated the notes and table.
Delete