In this entry I am only talking about the big 6 Canadian Banks of Bank of Montreal, Bank of Nova Scotia, CIBC, Royal Bank, National Bank, and TD Bank. I try to get the right information, but I cannot guarantee anything. In most of the test the CIBC bank is the one that is relatively cheaper. Also, the results maybe different from my recent reports as I have updated the stock price to the most recent ones.
The method I like best to check for a good stock price is dividend yield and this against the historical median dividend yield. What you are looking for is a current dividend yield higher than the historical dividend yield. Of the big banks that I follow, the Canadian Imperial Bank of Commerce comes off relatively better in this test. The Bank of Nova Scotia is a close second. Most of the banks have a current dividend yield above the historical median dividend yield, except for BMO and National Bank were the yield is low than the historical median.
For CIBC the current dividend yield is 5.30% and the historical median one is 4.38% a value 20.9% higher. For dividend yields, the higher the dividend yields the better the relative price of a stock is. Here is the 5 year median and historical average and historical median dividend yields based on my spreadsheets for our banks. All this data is going back to 1988.
| Bank | Symbol | 5 Year | Hist. Ave | Hist. Med |
|---|---|---|---|---|
| Bank of Montreal | BMO | 4.14% | 5.29% | 4.21% |
| Bank of Nova Scotia | BNS | 4.49% | 4.95% | 4.11% |
| CIBC | CM | 5.00% | 4.66% | 4.38% |
| Royal Bank | RY | 6.32% | 4.29% | 3.80% |
| National Bank | NA | 4.17% | 6.39% | 3.98% |
| TD Bank | TD | 3.75% | 3.32% | 3.48% |
Below you can see that Both BNS and CIBC are cheap as their current yield is 20% or more above the historical median dividend yield. Both Royal Bank and TD Bank are showing as reasonable and below the median. BMO is showing as reasonable but above the median.
| Bank | Symbol | Price | Dividend | Yield | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $103.80 | $4.24 | 4.08% | -2.97% |
| Bank of Nova Scotia | BNS | $72.48 | $3.60 | 4.97% | 20.85% |
| CIBC | CM | $108.77 | $5.76 | 5.30% | 20.90% |
| Royal Bank | RY | $106.55 | $4.20 | 3.94% | 3.73% |
| National Bank | NA | $73.52 | $2.84 | 3.86% | -2.94% |
| TD Bank | TD | $74.12 | $2.68 | 3.62% | 3.90% |
My next favourite test is the Price/Sales (P/S) Ratio. It sometimes works better than the Dividend Yield test on certain stock, especially old income trust stocks. What you want for a reasonable price is for the current P/S Ratio to be lower than the 10 year median P/S Ratio.
Of the big banks I follow, the Bank of Nova Scotia is relatively lower with the current P/S Ratio some 17.44% below its 10 year median P/S Ratio. Except for CIBC, all the banks have a higher P/S Ratio than the 10 year median P/S Ratio.
| Bank | Symbol | Ratio |
|---|---|---|
| Bank of Montreal | BMO | 2.56 |
| Bank of Nova Scotia | BNS | 3.29 |
| CIBC | CM | 2.52 |
| Royal Bank | RY | 3.01 |
| National Bank | NA | 2.78 |
| TD Bank | TD | 3.16 |
In this chart, BNS and CIBC are showing the stock price as reasonable and below the median. All the other banks are showing the stock price as reasonable, but above the median.
| Bank | Symbol | Price | Rev per Share | P/S Ratio | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $103.80 | $37.15 | 2.79 | 9.28% |
| Bank of Nova Scotia | BNS | $72.48 | $26.67 | 2.72 | -17.44% |
| CIBC | CM | $108.77 | $43.22 | 2.52 | -0.32% |
| Royal Bank | RY | $106.55 | $31.84 | 3.35 | 11.34% |
| National Bank | NA | $73.52 | $23.88 | 3.08 | 10.66% |
| TD Bank | TD | $74.12 | $22.21 | 3.34 | 5.75% |
A common ratio is the Price/Book Value per Share Ratio. For P/B Ratio, the lower the P/B Ratio is, the more book value you get for your money. Theoretically, the book value is the difference between assets and liabilities and therefore is the potential value a company is worth or the breakup value of the stock for the shareholders. What you want to see is a current P/B Ratio below the 10 year median P/B Ratio.
When valuing a stock, the lower the P/B Ratio is, the better the stock price is on a relative basis. The 10 year median P/B Ratios for our banks are below in the first table. From this it is obvious that historically, investors were willing to pay a relatively higher price for Royal Bank shares than other shares as it has the highest P/B Ratio. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share as it has the lowest ratio.
Of the banks I follow, BMO has the lowest 10 year median P/B Ratio (chart 1) and the CIBC is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 30% lower than the 10 year P/B Ratio (chart 2).
| Bank | Symbol | P/B |
|---|---|---|
| Bank of Montreal | BMO | 1.45 |
| Bank of Nova Scotia | BNS | 1.79 |
| CIBC | CM | 1.92 |
| Royal Bank | RY | 1.98 |
| National Bank | NA | 1.76 |
| TD Bank | TD | 1.61 |
The next chart shows that BNS, and CIBC, are relatively cheap as the current P/B Ratio is 20% or move below the 10 year ratio. The Royal Bank is showing as reasonable and below the median. BMO and TD banks are showing as reasonable but above the median although BMO is very close to the median.
| Bank | Symbol | Price | BVPS | Cur P/B | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $103.80 | $71.54 | 1.45 | 0.06% |
| Bank of Nova Scotia | BNS | $72.48 | $53.61 | 1.35 | -24.47% |
| CIBC | CM | $108.77 | $81.19 | 1.34 | -30.22% |
| Royal Bank | RY | $106.55 | $54.39 | 1.96 | -1.06% |
| National Bank | NA | $73.52 | $35.40 | 2.08 | 18.00% |
| TD Bank | TD | $74.12 | $45.19 | 1.64 | 1.87% |
My next favourite test is using the Graham Price. Of the big banks I follow, the CIBC is relatively lower with the current Price/Graham Price Ratio some 19% below its historical median P/GP Ratio. Except for BMO, and National Bank all the banks have a lower Graham Price Ratio than the median Graham Price Ratio
For the 10 year Price/Graham Price Ratios, the lower the ratio the lower the relative price of the underlying shares. This chart shows that investors are willing to pay a relatively higher price for Royal Bank stock than for other bank stocks as the GP Ratio is the highest ones. It also shows that generally the BMO has a relatively lower stock price as the median P/GP is the lowest of all the banks.
| Bank | Symbol | Low | Median | High |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.75 | 0.83 | 0.93 |
| Bank of Nova Scotia | BNS | 0.83 | 0.90 | 0.99 |
| CIBC | CM | 0.84 | 0.92 | 0.99 |
| Royal Bank | RY | 0.92 | 1.02 | 1.12 |
| National Bank | NA | 0.77 | 0.88 | 0.99 |
| TD Bank | TD | 0.87 | 0.96 | 1.05 |
The following chart shows that CIBC has the relatively lowest price. It also shows that BNS, CIBC, Royal Bank, and TD Bank are showing as reasonable and below the median. BMO and National Bank are showing as reasonable, but above the median. BMO again is very close to the median.
| Bank | Symbol | Price | Graham Pr | P/GP Ratio | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $103.80 | $124.57 | 0.83 | 0.40% |
| Bank of Nova Scotia | BNS | $72.48 | $94.73 | 0.77 | -14.99% |
| CIBC | CM | $108.77 | $146.82 | 0.74 | -19.47% |
| Royal Bank | RY | $106.55 | $105.82 | 1.01 | -1.28% |
| National Bank | NA | $73.52 | $72.67 | 1.01 | 14.97% |
| TD Bank | TD | $74.12 | $82.53 | 0.90 | -6.45% |
One of the most common ratios to look at is the P/E Ratio. When dealing with P/E Ratios, the lower the P/E ratio the better the relatively price is. Below is the 10 year low, median, and high median P/E Ratios for each bank I follow. What this chart also tells you is that investors are willing to pay relatively more money for TD Bank shares per dollar of earnings than for other banks as its P/E Ratios are the highest ones.
| Bank | Symbol | Low P/E | Median P/E | High P/E |
|---|---|---|---|---|
| Bank of Montreal | BMO | 10.17 | 11.34 | 12.44 |
| Bank of Nova Scotia | BNS | 10.22 | 11.3 | 12.51 |
| CIBC | CM | 9.14 | 9.98 | 10.73 |
| Royal Bank | RY | 10.68 | 11.76 | 12.80 |
| National Bank | NA | 9.15 | 10.39 | 11.47 |
| TD Bank | TD | 11.20 | 12.32 | 13.41 |
So, what is the relatively cheapest bank today? Currently CIBC has the lower P/E Ratio. In the last column I am comparing the 10 year Median P/E with the Current P/E. BNS has the lowest relative P/E Ratio. The other banks are showing as reasonable but above the median. This measure shows that the stock price for all but National Bank are below the median as far as P/E goes.
| Bank | Symbol | Price | 2019 EPS Est. | Curr P/E | M/C |
|---|---|---|---|---|---|
| Bank of Montreal | BMO | $103.80 | $9.64 | 10.77 | -5.05% |
| Bank of Nova Scotia | BNS | $72.48 | $7.44 | 9.74 | -13.79% |
| CIBC | CM | $108.77 | $11.80 | 9.22 | -7.64% |
| Royal Bank | RY | $106.55 | $9.15 | 11.64 | -0.98% |
| National Bank | NA | $73.52 | $6.63 | 11.09 | 6.73% |
| TD Bank | TD | $74.12 | $6.70 | 11.06 | -10.21% |
On my other blog I wrote yesterday about Canadian Imperial Bank of Commerce (TSX-CM, NYSE-CM) ... learn more. Next, I will write about Transcontinental Inc (TSX-TC.A, OTC-TCLAF) ... learn more on Wednesday, January 22, 2020 around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
No comments:
Post a Comment