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Many investors respond to macroeconomic events or market conditions by moving money from one sector to another. However, if your stock holdings are the Royal Bank of Canada (TSX:RY)(NYSE:RY) or Bank of Nova Scotland (TSX:BNS)(NYSE:BNS), there is no reason to panic or even act.
The two Canadian big bank stocks are staples in any investment portfolio. Both have weathered countless economic downturns and the harshest recessions, but remain impressive. In addition to financial stability and strength, these blue chip investments have a dividend track record spanning more than 100 years. Buy either one today and sleep soundly for years to come.
size and scale
RBC is not only the largest bank in the country, but also the most valuable and strongest brand. The $178 billion bank is ranked number one on Brand Finances Canada 100 2022. Big banks consistently top the list, though RBC and BNS are just two of six competitors with double-digit growth in 2020.
Its President and CEO, Dave McKay, said, “In an uncertain world, we continue to operate from a position of strategic and financial strength. Looking ahead, our size, scale and diversified business model will continue to create value for our customers, communities and shareholders.”
In Q3 fiscal 2022, net income fell 17% to $3.6 billion from Q3 fiscal 2021. However, there are no alarm bells ringing as RBC’s capital position remains robust. The bank’s Investor & Treasury Services reported the highest net income growth (up 86% to $76 million) on higher customer deposit receipts.
As of July 31, 2022, the Common Equity Tier 1 (CET1) ratio is 13.1%. The bank delivered strong customer-centric organic growth and returned capital to shareholders through common stock dividends ($1.8 billion) and share repurchases ($1.3 billion). RBC has a buffer of $66 billion above the regulatory minimum. In addition, the large customer deposit base can fund organic loan growth in retail and corporate banking.
Better growth prospects
Bank of Nova Scotia’s net income rose 2% year over year to $2.59 billion in the third quarter of fiscal 2022, driven by 14% loan growth in its Canadian banking division. Its CEO, Brian Porter, said: “The surge in lending came as the financial health of businesses and consumers showed continued strength.”
Porter adds, “The macroeconomic backdrop for our key regions remains positive as economies begin to stabilize following a unique confluence of events.” However, amid economic uncertainties, BNS took appropriate action by raising its loan loss provisions (PCLs) by 8 % increased to $412 million.
Another highlight during the quarter was consumer finances, which were strong despite inflationary pressures. BNS average deposits rose 14% from pre-pandemic levels, while retail default rates were half their pre-pandemic levels.
Some market analysts believe that BNS has better growth prospects than RBC due to the bank’s exposure to emerging and Latin American markets. They said the prospects for these markets in the second half of 2023 are good.
RBC trades at $126.45 per share and pays a 4.05% dividend, while BNS is cheaper ($71.25) and more generous (5.78%). While stock price and dividend yield are important considerations, one thing is certain — you can buy both big bank stocks today and hold them forever.