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. The results may be different from my recent reports as I have updated the stock price to the most recent ones. Also, all the data used in this entry is going back to 1988. When I talked about the individual stocks, data went back for different time periods for each stock.
The conclusion I come to is that none of the banks are relatively reasonable, but with some above and some below the median. BNS and CIBC seem to be the cheapest according to the Dividend Yield and P/S Ratio tests. All the banks seem reasonable. It might be still a good time to buy Canadian Banks.
The method I like best to check for a good stock price is using the current dividend yield and compare this against the 10 year median dividend yield. What you are looking for is a current dividend yield higher than the historical dividend yield. For dividend yields, the higher the dividend yields the better the relative price of a stock is.
In the first chart is the 10 year high and median and historical median dividend yields based on my spreadsheets for our banks. In the second chart is a comparison (M/C field) of current yield and 10 year Median Yield. The higher the current yield is compared to the historical one, the better the current price is.
Of the big banks that I follow, the Bank of Nova Scotia comes off relatively better in this test. For Bank of Nova Scotia, the current dividend yield is 5.60% and the 10 year median one is 4.56% a difference of 22.81%.
| Bank | Symbol | 10Y H | 10 Year Med | Hist. Med |
|---|---|---|---|---|
| Bank of Montreal | BMO | 7.27% | 4.12% | 4.14% |
| Bank of Nova Scotia | BNS | 7.58% | 4.56% | 4.12% |
| CIBC | CM | 8.43% | 4.66% | 4.49% |
| Royal Bank | RY | 5.80% | 3.87% | 3.82% |
| National Bank | NA | 7.15% | 4.17% | 3.94% |
| TD Bank | TD | 6.22% | 3.79% | 3.50% |
All the banks are showing a higher yield than the 10 year median except for the Royal Bank and National Bank. These banks are still reasonable, but the yield is above the median.
| Bank | Symbol | Price | Dividend | Yield | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $135.41 | $5.72 | 4.22% | 2.53% |
| Bank of Nova Scotia | BNS | $73.57 | $4.12 | 5.60% | 22.81% |
| CIBC | CM | $61.66 | $3.40 | 5.51% | 18.33% |
| Royal Bank | RY | $138.76 | $5.28 | 3.81% | -1.68% |
| National Bank | NA | $100.60 | $3.88 | 3.86% | -7.51% |
| TD Bank | TD | $93.01 | $3.84 | 4.13% | 8.93% |
My next favourite test is the Price/Sales (P/S) Ratio. It sometimes works better than the Dividend Yield test on certain stock, especially old income trust stocks. What you want for a reasonable price is for the current P/S Ratio to be lower than the 10 year median P/S Ratio.
Of the big banks I follow, the Bank of Nova Scotia is relatively lower with the current P/S Ratio at 10.62% above its 10 year median P/S Ratio. Its price is reasonable, but above the median. All the other banks have a higher P/S Ratio than the 10 year median P/S Ratio.
| Bank | Symbol | Ratio |
|---|---|---|
| Bank of Montreal | BMO | 2.56 |
| Bank of Nova Scotia | BNS | 3.00 |
| CIBC | CM | 2.76 |
| Royal Bank | RY | 3.17 |
| National Bank | NA | 2.96 |
| TD Bank | TD | 3.18 |
In this chart, BNS and CIBC are showing the stock price as reasonable and below the median. All the other banks are showing the stock price as reasonable, but above the median. Since BMO and RY have a current ratio that is more than 10% above the 10 year median, they are relatively expensive. Although some analysts say the stock is expensive if 20% or more above the 10 year median ratio.
| Bank | Symbol | Price | Rev per Share | P/S Ratio | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $135.41 | $47.34 | 2.86 | 11.73% |
| Bank of Nova Scotia | BNS | $73.57 | $28.50 | 2.58 | -13.95% |
| CIBC | CM | $61.66 | $25.60 | 2.41 | -12.73% |
| Royal Bank | RY | $138.76 | $38.72 | 3.58 | 13.05% |
| National Bank | NA | $100.60 | $31.26 | 3.22 | 8.72% |
| TD Bank | TD | $93.01 | $28.21 | 3.30 | 3.68% |
A common ratio is the Price/Book Value per Share Ratio. For P/B 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. What you want to see is a current P/B Ratio below the 10 year median P/B Ratio.
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 as it has the highest P/B Ratio. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share as it has the lowest ratio.
Of the banks I follow, BMO has the lowest 10 year median P/B Ratio at 1.38 (chart 1) and the Bank of Nova Scotia is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 6.9% higher than the 10 year P/B Ratio (chart 2).
| Bank | Symbol | P/B |
|---|---|---|
| Bank of Montreal | BMO | 1.38 |
| Bank of Nova Scotia | BNS | 1.59 |
| CIBC | CM | 1.62 |
| Royal Bank | RY | 1.91 |
| National Bank | NA | 1.76 |
| TD Bank | TD | 1.59 |
The next chart shows that BNS, and CIBC have relatively the lowest ratio above the 10 year median ratios. These banks and Royal Bank are showing as reasonable but above the median. The rest are showing that they are relatively expensive as they are more than 20% above the 10 year median ratio
| Bank | Symbol | Price | BVPS | Current P/B | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $145.19 | $80.18 | 1.81 | 31.22% |
| Bank of Nova Scotia | BNS | $90.56 | $53.28 | 1.70 | 6.90% |
| CIBC | CM | $159.59 | $91.66 | 1.74 | 7.48% |
| Royal Bank | RY | $142.03 | $65.22 | 2.18 | 14.02% |
| National Bank | NA | $100.21 | $47.06 | 2.13 | 20.99% |
| TD Bank | TD | $100.43 | $51.60 | 1.95 | 22.41% |
My next favourite test to check reasonableness of the stock price is using the Graham Price. 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 as the GP Ratio is the highest ones. It also shows that generally BNS and CIBC have a relatively lower stock price as their median P/GP is the lowest of all the banks at 0.73 and 0.79 respectively.
Of the big banks I follow, the CIBC is relatively lower with the current Price/Graham Price Ratio some 13.03% below its 10 year median P/GP Ratio (see second chart). All the banks have a lower Graham Price Ratio than the median Graham Price Ratio except for National Bank.
| Bank | Symbol | Low | Median | High |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.71 | 0.90 | 0.80 |
| Bank of Nova Scotia | BNS | 0.71 | 0.82 | 0.96 |
| CIBC | CM | 0.69 | 0.81 | 0.92 |
| Royal Bank | RY | 0.89 | 0.99 | 1.09 |
| National Bank | NA | 0.75 | 0.87 | 1.00 |
| TD Bank | TD | 0.81 | 0.90 | 1.01 |
The following chart shows that CIBC has the relatively lowest price. All the banks have current ratios below the 10 year median ratios with the exception of National Bank. So, they are all Reasonable and below the median with National Bank reasonable and above the median.
| Bank | Symbol | Price | Graham Pr | P/GP Ratio | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $135.41 | $171.03 | 0.79 | -12.03% |
| Bank of Nova Scotia | BNS | $73.57 | $101.18 | 0.73 | -11.33% |
| CIBC | CM | $61.66 | $87.53 | 0.70 | -13.03% |
| Royal Bank | RY | $138.76 | $140.17 | 0.99 | -0.01% |
| National Bank | NA | $100.60 | $109.41 | 0.92 | 5.69% |
| TD Bank | TD | $93.01 | $108.68 | 0.86 | -4.91% |
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 10 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 Royal Bank shares per dollar of earnings than for other banks as its P/E Ratios are the highest ones at 10.31, 11.62 and 12.92 for Low, Median and High P/E Ratios.
| Bank | Symbol | Low P/E | Median P/E | High P/E |
|---|---|---|---|---|
| Bank of Montreal | BMO | 7.45 | 10.64 | 11.97 |
| Bank of Nova Scotia | BNS | 8.82 | 10.71 | 11.78 |
| CIBC | CM | 8.23 | 10.08 | 10.87 |
| Royal Bank | RY | 10.31 | 11.61 | 12.92 |
| National Bank | NA | 8.65 | 9.81 | 11.05 |
| TD Bank | TD | 8.25 | 8.92 | 11.28 |
So, what is the relatively cheapest bank today? Currently BNS has the lower P/E Ratio at 8.84 (see chart below). In the chart below, in the last column I am comparing the 10 year Median P/E with the Current P/E. BNS has the lowest relative P/E Ratio (at 17.44% below the 10 year Median P/E Ratio). BMO, BNS and CIBC have current P/E Ratios below the 10 year median. They are reasonable and below the median. All the others are reasonable but above the median.
| Bank | Symbol | Price | 2023 EPS Est. | Curr P/E | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $135.41 | $13.60 | 9.96 | -6.42% |
| Bank of Nova Scotia | BNS | $73.57 | $8.32 | 8.84 | -17.44% |
| CIBC | CM | $61.66 | $6.83 | 9.03 | -10.44% |
| Royal Bank | RY | $138.76 | $11.82 | 11.74 | 1.11% |
| National Bank | NA | $100.60 | $9.63 | 10.45 | 6.49% |
| TD Bank | TD | $93.01 | $9.04 | 10.29 | 15.34% |
On my other blog I wrote yesterday about Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC-APYRF) ... learn more. Next, I will write about Richelieu Hardware Ltd (TSX-RCH, OTC-RHUHF) ... learn more on Wednesday, February 15, 2023 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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Thank you for this great write up and analysis!
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