For our latest recommendation, we travel in search of a quality fixed-income investment that provide...
2 Ways to Bank Off of Canada
06/07/2016 10:00 am EST
Income expert Jack Adamo looks north of the border to find two favored stocks that recently reported earnings. Here, the editor of Insiders Plus highlights two of Canada's leading banks.
The Toronto-Dominion Bank (TD) had a good Q2. Revenues were up 6.4% and EPS rose 5.2%. Higher reserves for credit losses ate into the bottom line a bit, but the numbers were still in a very safe range.
Return on common equity was good at 12.8% or 15% when you exclude intangibles.
The efficiency ratio was good at 57.3%, but like its fellow Canadian banks, which are in the same range, I'd like to see that closer to 50%.
Its Tier 1 Common Equity ratio was solid at 10.1% and its payout ratio was conservative at 51.2%, leaving plenty in the kitty for future growth and higher dividends.
We have a 22.4% gain in Toronto-Dominion for a holding period less than 18 months. Toronto-Dominion is a buy up to $46. I'm comfortable with you taking position now, if you have not yet done so.
Elsewhere up north, Canadian Imperial Bank of Commerce (CM) had a good quarter as well. Revenues rose 7% and EPS rose 4.4%. Here too, higher provisions for credit losses, held down profits somewhat. The efficiency ratio was in its usual range at 61.7%.
Loan loss stats were good and return on equity was excellent at 18%. Canadian Imperial's Tier 1 capital ratio is excellent at 11.9%. I'll look into that further this week, just out of curiosity. The company's accounting is very clean.
The company's dividend payout ratio was very good at 50.2%, though higher than last year's 47%. There's still plenty left for investment in growth. Canadian Imperial Bank of Commerce is a buy up to $86.
As with Toronto-Dominion, I'm okay with you buying Canadian Imperial at this time.
I don't think Canada's oil industry is out of the woods yet, but I have no fear about the viability of these banks, nor the condition of the Canadian economy long term.
By Jack Adamo, Editor of Insiders Plus
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