2 ways to bank on Canada
These Canadian financial firms have strong balance sheets and solid growth prospects.
I've long been a fan of Canadian banks for their solid balance sheets and conservative operations. We rea adding to our positions in Canadian Imperial Bank of Commerce (CM) and the Toronto-Dominion Bank (TD).
Both are making higher highs and higher lows on their long-term charts. Profitability is increasing modestly along with Canada's GDP, and their dividends, already better than American banks, have the fuel to grow. I expect these trends to continue.
Canadian Imperial Bank of Commerce is based in Toronto and provides various financial products and services to individuals, as well as small business, commercial, corporate, and institutional clients in Canada and internationally.
It's one of the top four banks in Canada and, like the others, has very little in common with big U.S. money center banks, having avoided the great majority of their pitfalls.
The shares have more than tripled in the last ten years and recently hit a new all-time high. The quarterly dividend yields 4.6% and varies less than most foreign stocks.
Yield growth has averaged 6.7% per year for the last five years. The shares trade for less than 11-times trailing earnings.
Last month the company reported that fourth quarter earnings per share were up 12.8% at $2.02. Excluding "items" the rise was 14.6%. Full-year earnings were up 6.6% to $8.07 a share after reasonable adjustments. Operating cash flow was four times higher than income, which is always a big plus.
Given the challenging economic and interest rate environment, these are excellent results, and the stronger fourth quarter numbers suggest things might improve further in 2013, although the environment will remain challenging.
The Toronto-Dominion Bank provides financial and banking products and services to personal and small business customers in North America and internationally. It is well capitalized and well operated.
The stock has more than quadrupled in the last 10 years and shows no sign of slowing. It recently hit a new all-time high. Earnings are consistent and the stock pays a nice dividend, yielding 3.5% at its current price and payout.
Fourth quarter GAAP earnings per share were $1.66 versus $1.68 last year, while adjusted earnings of $1.83 were 5% higher than the comparable quarter. Full year earnings per share were $6.86 according to GAAP, up 5%, and adjusted earnings were $7.42 per share, up 8%. The shares trade for about 12-times trailing earnings.
Tier 1 Capital according to Basel lll was a very healthy 8.2%. Return on equity was 16.3%, comfortably above the 15% threshold that Warren Buffett considers the measure of an excellent company.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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