Are bank stocks the best investment in Canada right now?

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Canadian bank stocks have prospered in 2021. The BMO Covered Call Canadian Banks ETF (TSX: ZWB), which aims to invest in funds that offer exposure to Canadian bank stocks while mitigating downside risk, has rose 19% so far this year. Today, I want to discuss whether bank stocks are still a great investment in this economic environment. Let’s dive in.

Canada’s economic rebound has started to slow

Last Friday, Statistics Canada released its GDP report for the month of July. The economy contracted 0.1% in July, as agriculture suffered a sharp drop of 5.5%. Meanwhile, the food and lodging services sector expanded by more than 12%. As of this report, the economy has yet to recover to its pre-pandemic levels. The slide in key industries like manufacturing, construction, utilities and others has some economists concerned about a broader slowdown.

In April, I looked at bank stocks. to worth rebounding as the economy recovered. This pullback may cast Canadian bank stocks in a different light, at least in the short term. Royal Bank of Canada (TSX: RY)(NYSE: RY), the country’s main financial institution, has seen its shares fall 1.5% month-on-month. The stock is still up 22% so far this year.

Royal Bank posted 34% net income growth in the third quarter of 2021. This bank and its peers benefited from a large drop in loan loss provisions as financial institutions were able to take a breather compared to the chaos that rocked the economy during the onset of the pandemic. Royal Bank stock has a strong price-to-earnings ratio of 12. Meanwhile, it offers a quarterly dividend of $ 1.08 per share. That represents a 3.3% return.

How will banking stocks perform in this environment?

Toronto-Dominion Bank (TSX: TD)(New York Stock Exchange: TD) it is the second largest financial institution in Canada. I He suggested these bank actions will arrive at the beginning of July. TD Bank has significant exposure in the United States, especially in the retail banking sector. While the US economy has prospered in 2021, some economists are now warning of a slowdown. In addition, negotiations on the Biden administration’s infrastructure plan have run into multiple snags. There is also the persistent problem of the COVID-19 pandemic that threatens to limit potential growth.

The shares of this banking action have risen 18% in 2021. However, its growth has slowed significantly in recent months. It still has an attractive P / E ratio of 10. Meanwhile, TD Bank offers a quarterly dividend of $ 0.79 per share. That represents a 3.7% yield.

Scotiabank (TSX: BNS)(New York Stock Exchange: BNS) is another action from a Canadian bank with a keen interest in international markets. It has significant interest in Latin America, one of the worst affected economies in 2020. Scotiabank shares are up 14% so far this year. Bank stocks have declined slightly over the last month.

Like Canada, the overall Latin American economy is not expected to return to pre-pandemic levels by the end of 2021. Still, its rebound has been encouraging given the challenges it faced the previous year. Scotiabank shares last achieved a favorable P / E ratio of 10. In addition, they pay a quarterly dividend of $ 0.90 per share, representing a very solid return of 4.6%.

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