In this entry I am only talking about the big 6 Canadian Banks of Bank of Montreal, Bank of Nova Scotia, CIBC, Royal Bank, National Bank, and TD Bank. I try to get the right information, but I cannot guarantee anything. In most of the test the CIBC bank is the one that is relatively cheaper.
The method I like best to check for a good stock price is dividend yield and this against the historical median dividend yield. What you are looking for is a current dividend yield higher than the historical dividend yield. Of the big banks that I follow, the Canadian Imperial Bank of Commerce comes off relatively better in this test. Most of the banks have a current dividend yield above the historical median dividend yield, except for BMO were the yield is low than the historical median.
For CIBC the current dividend yield is 4.93% and this historical one is 4.34% a value 13.7% high. For dividend yields, the higher the dividend yields the better the relative price of a stock is. Here is the 5 year median and historical average and historical median dividend yields based on my spreadsheets for our banks. All this data is going back to 1988.
| Bank | Symbol | 5 Year | Hist. Ave | Hist. Med |
|---|---|---|---|---|
| Bank of Montreal | BMO | 4.10% | 5.29% | 4.29% |
| Bank of Nova Scotia | BNS | 4.26% | 5.01% | 4.10% |
| CIBC | CM | 4.53% | 4.58% | 4.34% |
| Royal Bank | RY | 3.69% | 4.32% | 3.69% |
| National Bank | NA | 4.17% | 6.27% | 3.94% |
| TD Bank | TD | 3.53% | 3.29% | 3.47% |
| Bank | Symbol | Price | Dividend | Yield | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $97.24 | $4.00 | 4.11% | -4.11% |
| Bank of Nova Scotia | BNS | $73.57 | $3.40 | 4.62% | 12.72% |
| CIBC | CM | $110.24 | $5.44 | 4.93% | 13.70% |
| Royal Bank | RY | $99.06 | $3.92 | 3.96% | 7.24% |
| National Bank | NA | $60.86 | $2.60 | 4.27% | 8.43% |
| TD Bank | TD | $72.83 | $2.68 | 3.68% | 6.05% |
My next favourite test is using the Graham Price. Of the big banks I follow, the CIBC is relatively lower with the current Price/Graham Price Ratio some 19.10% below its historical median P/GP Ratio. Except for BMO, all the banks have a lower Graham Price Ratio than the median Graham Price Ratio
For the 10 year Price/Graham Price Ratios, the lower the ratio the lower the relative price of the underlying shares. This chart shows that investors are willing to pay a relatively higher price for Royal Bank stock than for other bank stocks. It also shows that generally the BMO has a relatively lower stock price.
| Bank | Symbol | Low | Median | High |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.75 | 0.84 | 0.95 |
| Bank of Nova Scotia | BNS | 0.83 | 0.92 | 1.02 |
| CIBC | CM | 0.85 | 0.94 | 1.04 |
| Royal Bank | RY | 0.92 | 1.03 | 1.14 |
| National Bank | NA | 0.77 | 0.88 | 1.02 |
| TD Bank | TD | 0.87 | 0.97 | 1.07 |
| Bank | Symbol | Price | G.P.. | P/GP Ratio | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $97.24 | $113.47 | 0.86 | 2.02% |
| Bank of Nova Scotia | BNS | $73.57 | $90.21 | 0.82 | -11.35% |
| CIBC | CM | $110.24 | $144.96 | 0.76 | -19.10% |
| Royal Bank | RY | $99.06 | $101.51 | 0.98 | -5.26% |
| National Bank | NA | $60.86 | $69.77 | 0.87 | -0.88% |
| TD Bank | TD | $72.83 | $78.56 | 0.93 | -4.43% |
One of the most common ratios to look at is the P/E Ratio. When dealing with P/E Ratios, the lower the P/E ratio the better the relatively price is. Below is the 5 year low, median, and high median P/E Ratios for each bank I follow. What this chart also tells you is that investors are willing to pay relatively more money for TD Bank shares per dollar of earnings than for other banks.
| Bank | Symbol | Low P/E | Median P/E | High P/E |
|---|---|---|---|---|
| Bank of Montreal | BMO | 10.26 | 11.42 | 12.77 |
| Bank of Nova Scotia | BNS | 10.14 | 11.29 | 12.52 |
| CIBC | CM | 9.48 | 10.08 | 10.67 |
| Royal Bank | RY | 10.85 | 12.09 | 12.92 |
| National Bank | NA | 9.63 | 10.62 | 12.21 |
| TD Bank | TD | 11.40 | 12.41 | 13.33 |
So, what is the relatively cheapest bank today? Currently CIBC has the lower P/E Ratio. In the last column I am comparing the Historical Median P/E with the Current P/E. This measure shows that all the banks are below the median as far as P/E goes. CIBC has the lowest relative P/E Ratio.
| Bank | Symbol | Price | 2019 EPS Est. | Curr P/E | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $97.24 | $8.84 | 11.00 | -3.68% |
| Bank of Nova Scotia | BNS | $73.57 | $7.27 | 10.12 | -10.37% |
| CIBC | CM | $110.24 | $12.65 | 8.71 | -13.55% |
| Royal Bank | RY | $99.06 | $8.96 | 11.06 | -8.55% |
| National Bank | NA | $60.86 | $6.29 | 9.68 | -8.89% |
| TD Bank | TD | $72.83 | $6.78 | 10.74 | -13.44% |
The next most common ratio is the Price/Book Value per Share Ratio. For Price/Book Value per Share Ratio, the lower the P/B Ratio is, the more book value you get for your money. Theoretically, the book value is the difference between assets and liabilities and therefore is the potential value a company is worth or the breakup value of the stock for the shareholders.
When valuing a stock, the lower the P/B Ratio is, the better the stock price is on a relative basis. The 10 year median P/B Ratios for our banks are below in the first table. From this it is obvious that historically, investors were willing to pay a relatively higher price for Royal Bank shares than other shares. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share.
Of the banks I follow, BNS has the lowest P/B Ratio and the CIBC is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 22% lower than the 10 year P/B Ratio.
| Bank | Symbol | P/B |
|---|---|---|
| Bank of Montreal | BMO | 1.45 |
| Bank of Nova Scotia | BNS | 1.85 |
| CIBC | CM | 1.92 |
| Royal Bank | RY | 1.98 |
| National Bank | NA | 1.74 |
| TD Bank | TD | 1.61 |
The next chart shows that CIBC has relatively to the 10 year ratio, the lowest ratio.
| Bank | Symbol | Price | BVPS | Current P/B | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $97.24 | $64.73 | 1.50 | 3.60% |
| Bank of Nova Scotia | BNS | $73.57 | $49.75 | 1.48 | -20.07% |
| CIBC | CM | $110.24 | $73.83 | 1.49 | -22.23% |
| Royal Bank | RY | $99.06 | $51.11 | 1.94 | -2.11% |
| National Bank | NA | $60.86 | $34.40 | 1.77 | 1.68% |
| TD Bank | TD | $72.83 | $40.45 | 1.80 | 11.83% |
CIBC seems to come out well in this testing, but it is my least favourite bank and one I would probably not buy. If you want a copy of my spreadsheet, just email me. You just need to put in the current stock prices in the second boxed area and the spreadsheet will do the rest. Spreadsheet would be good for a year.
On my other blog I wrote yesterday about Valener Inc (TSX-VNR, OTC-VNRCF) ... learn more. Next, I will write about Shaw Communications Inc (TSX-SJR.B, NYSE-SJR) ... learn more on February 1, 2019 around 5 pm.
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.
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