Canadian Investors: Buy and Hold These 3 Stocks for Superior Returns

The Canadian stock market is rising on optimism about economic recovery amid ongoing vaccine distribution. With that in the background, I’m particularly bullish on banking stocks that have delivered exceptional returns in the past. The revival of consumer demand, the expected spike in inflation, and rising economic activities are likely to boost banking stocks significantly. 

Furthermore, lower credit provisions and continued improvement in the efficiency ratio are likely to support profitability.

So, if you can invest some amount into equity, consider buying these three top Canadian bank stocks that have recently reported solid earnings results and could continue to deliver superior returns in the long term. Meanwhile, these banks are Dividend Aristocrats and are likely to continue to pay higher dividends in the future.

Bank of Montreal

Shares of Bank of Montreal (TSX:BMO)(NYSE:BMO) have appreciated over 20% in three months. Moreover, it has risen over 91% in one year. The growth in its stock reflects solid financial and operational performance. Recently, the bank delivered impressive Q2 results. Its revenues increased by 16%, while its adjusted earnings jumped 79%, reflecting higher deposit volumes, operating leverage, and lower credit provisions.

I expect the uptick in Bank of Montreal stock could continue in 2021 and beyond, thanks to the expected growth in credit demand and improving economic outlook. Moreover, its diversified business model, growth in loans and deposit volumes, and reduction in loss provisions are likely to drive its profitability and dividends.

The bank also looks attractive on valuation, as it trades at a much lower P/BV (price-to-book value) multiple of 1.6, compared to most of its peer group and historical average. BMO also offers a healthy yield of 3.3%.


Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has gained over 13% in three months and by over 24% year to date. Notably, the bank delivered a stellar growth of 136% in its Q2 adjusted earnings, backed by a decline in credit provisions and increased deposits. Thanks to its improving performance and favourable industry outlook, I see further upside in Toronto-Dominion stock. 

Its diversified revenue mix, improving macroeconomic environment, and lower credit provisions could continue to drive its profitability, in turn, its dividends. The bank has consistently paid higher dividends to its shareholders. Its dividends have increased by 11% annually since 1996 and offer a yield of 3.6%. With continued growth in its earnings, Toronto-Dominion will likely enhance its shareholders’ returns through higher dividend payments. 


Scotiabank (TSX:BNS)(NYSE:BNS) has delivered solid returns in the past, reflecting its robust growth in its profitability. Recently, it reported an increase of 81% in its adjusted net income. The stellar year-over-year growth reflects lower credit loss provisions, deposit growth, and a rebound in fee income.

I expect Scotiabank to deliver solid financials in the coming quarters, driven by the uptick in its loan and deposit volumes and exposure to high-growth banking markets. Further, a decrease in provisions, growth in digital business, and operating leverage are likely to support its bottom line.

The stock has gained over 26% in six months and I believe the uptrend could sustain. Scotiabank trades at a price-to-book value multiple of 1.5, cheaper than all of its peers and indicating further upside. And it offers an attractive dividend yield of 4.4%.

Besides Scotiabank, take a look a this free list of stocks trading below $50 and offering good value:

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

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