Canadian Dividend Investing: Big Banks

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Canadian Dividend Investing can be riskier than Exchange Traded Fund investing, but I enjoy it more.

I know that the owners of this site a big fans of index investing and Exchange Traded Fund Investing, whereas I enjoy the risk somewhat in picking stocks myself (through my Questrade trading account) for the most part. I have a bit of gambler in me, yeah.

I am a big fan of dividend investing as you know, and I think that bank stocks are a great component of any dividend investing portfolio in Canada. Heck, most mutual funds and index investments and exchange-traded funds all have financials as one of the top holdings anyways.

Banks can be a pretty safe investment as they have good yields, are solid, and are considered safer than investing in banks in other countries, like the United States. The financial sector is the predominant sector in the Toronto Stock Exchange anyway, comprising 30% of the Toronto Stock Exchange.

I thought I’d highlight some ways to get in on the Canadian bank dividend-paying action.

Please take these suggestions and considerations with a grain of salt, I am by no means an investing guru! Just opening up discussion, is all 🙂

Here’s a post by the Money Smarts Blog on how to invest in Canadian dividend stocks if you want a primer.

Here are a few that provide good dividend yields:

Bank of Montreal (TSE: BMO)

I personally own this BMO. The current price is $63.34 (May 2013) and the annual dividend yield (paid out quarterly) is 4.67%. The P/E ratio is 10.47 which is pretty good. The value ratio is also decent at 2.19. They recently increased their dividend from 72 cents per share to 74 cents per share on the most recent payout in April. I currently own this stock myself.

National Bank (TSE: NA)

National Bank of Canada recently announced record profits in the second quarter of 2013 and an increased dividend by 5% from 83 cents per share to 87 cents per share. The current price for NA is $77.02 (May 2013) and the annual dividend yield is 4.52%. The P/E ratio is 8.22 and the value ratio is 1.82.


Canadian Imperial Bank of Commerce is $80.45 per share (May 2013) and has an annual dividend yield of 4.67%. The P/E ratio is 10.28 and the value ratio is 2.15, which is slightly better than the Bank of Montreal VR. $0.94 a share is paid out quarterly and they increased their dividend from $0.92 early last year.

Banks have always been considered a no-brainer investment.

However, this might not be the case any longer. The performance of bank equities is closely tied to the residential mortgage and consumer credit industry and recently the returns and profits have been lacklustre. Financial Post and Globe and Mail both recently had articles detailing the beginning of the end of safe investing with Canadian banks. Because investors want to see dividend growth on a consistent basis, the Canadian banks have not been providing this very much and thus dividend growth has been stalled.

If you are interested in buying index funds or exchange-traded funds to diversify your investment in the financial sector, there are a few exchange-traded funds that can be a good option.

BMO S&P/TSX Equal Weight Banks Index ETF (ZEB)

This ETF has similar holdings and weighting to the six large banks in Canada. However, the management expense ratio for this exchange-traded fund is 0.62%. The current price (May 2013) is around $18.75 and the annual dividend payout is 3.44%. On a monthly basis, the payout is $0.056 per share.

The holdings in ZEB are as follows:

  • Royal Bank of Canada 17.21%
  • Bank of Montreal 16.90%
  • Bank of Nova Scotia 16.78%
  • Toronto Dominion Bank 16.58%
  • National Bank of Canada 16.08%
  • Canadian Imperial Bank of Commerce 15.78%

iShares Dow Jones Canadian Select Dividend Index Fund (XDV)

The current price of the XDV exchange-traded fund is $22.60 (May 2013). The annual dividend yield is 4.16% with a monthly dividend payout of $0.07819 per share. The management expense ratio for this exchange-traded fund is 0.50%. I currently own this exchange-traded fund. Over 50% of the holdings in this exchange-traded fund are in the financial sector. There are 30 individual stocks in this exchange-traded fund.

The holdings in XDV are as follows:

  • Candian Imperial Bank of Commerce 6.42%
  • Bonterra Energy 6.35%
  • National Bank of Canada 5.77%
  • TD Bank 5.56%
  • BMO 5.27%
  • Telus 4.95%
  • Royal Bank of Canada 4.5%
  • (okay, you get the point)

I used to be worried about some of Canada’s online banks threatening the major players over the long term, but my fears have long ago been put to rest. When you what Scotiabank has done with Tangerine (the old ING Direct) and how RBC simply paid to make Ally disappear, it’s quite clear that if the big financial fish want to, they can gobble up the online-only small fries whenever they wish!

January 2018 Update

My Canadian bank-heavy dividend strategy has paid off well over the past few years since I originally wrote this post! Canada’s major banks: Royal Bank of Canada (RBC), Scotiabank or Bank of Nova Scotia, Bank of Montreal (BMO), Toronto Dominion Bank (TD), and Canadian Imperial Bank of Commerce (CIBC) continue to reap the rewards of being in a relatively well-protected market here in Canada. I sometimes shake my head at what they get away with in terms of applying fees to everyday banking transactions, but it appears that Canadians’ love of stability and the familiar is enough to keep these banks paying out ever-increasing dividends no matter what. Barring extreme disruptions from fintech upstarts such as robo advisors, check out our Wealthsimple review if you’re interested, but I’m not sure that I see that on the Horizon. For one thing, we’re already seeing the major banks come out with their own robo advisor platforms such as RBC InvestEase and BMO Smartfolio in order to take on these new young companies. All in all, I’m not too worried about disruption in the Canadian banking sector. The leaders are so entrenched and so protected that they have a massive competitive advantage. This means only great things for my dividend portfolio moving forward!

Readers, do you have any Canadian dividend-paying favourites?


Young is a writer and former owner of Young and Thrifty. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals.

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