Top Dividend-Paying Bank and Financial Institution Stocks In Canada

You can see why banking and financial stocks remain a popular choice for investors such as Warren Buffett. These companies provide a necessary service to people all around the world and are an integral part of any economy. But how do you find Canada’s top bank and financial institution dividend stocks?

The Warren Buffett-owned Berkshire Hathaway has over 20% of its holdings invested in the banking and financial sector. These companies also have an easy-to-understand business model which makes them attractive to the average investor.

Here we take a look at some of the top dividend-paying banking and financial services companies in Canada that should be on your watch list right now, whether you manage your own money through an online broker or with the help of an advisor. 

Royal Bank of Canada

The first stock on the list is Royal Bank of Canada which is Canada’s largest bank. In 2021, the stock is up 13% and has surged close to 40% in the last 12 months. In Q1, Royal Bank of Canada reported a net income of $3.84 billion, a year-over-year growth of 10% while its diluted net income per share was up 11% at $2.66.

Similar to most other financial services companies, RBC’s Capital Market business was its best-performing segment as net income grew 21% year over year to $1.06 billion in this vertical. In the last five years, Royal Bank of Canada’s stock is up 55%. It also sports a forward yield of 3.66%.

Toronto-Dominion Bank

Toronto-Dominion Bank is the second-largest bank in Canada and its shares have gained 17% year to date. In Q1, TD reported earnings per share of $1.83 while its net income stood at $3.38 billion. Comparatively, in the prior-year period, its adjusted net income was just over $3 billion while earnings were $1.66 per share.

TD Bank attributed its growth to higher profitability in the retail segment. Revenue was up 1% year over year on higher loan and deposit volumes in Q1.

In the last five years, TD stock is up 50%. It now sports a forward yield of 3.67%.

Equitable Group

Equitable Group has been one of the top-performing financial companies on the TSX. This stock has returned 110% in the last 12 months and is up 134% in the last five-year period. Since May 2011, shares of Equitable Group have gained over 350%. Despite its stellar gains, EQB stock has a forward yield of 1.1%.

The company has benefitted from Canada’s housing market that has been on an absolute tear in the last decade and a half. Equitable Group provides savings and mortgage lending services to retail and commercial clients.

In Q4 of 2020, its sales were up 12% while earnings grew by 27% year over year.

Brookfield Asset Management

This global alternative asset manager is also one of the largest real estate investors in the world. It also invests in private equity, renewable power, and infrastructure. While Brookfield Asset Management has a less than attractive dividend yield of 1.1%, it has increased these payouts consistently over the year. In 2021, the company increased dividend payments by 8%.

Further, Brookfield Asset Management expects to generate cumulative free cash flows of $23 billion through 2025 and $72 billion in the next decade. 

While its dividend payouts stand at less than $1 billion annually, investors can expect dividend increases in the future as well.

Brookfield Asset Management stock is up 228% in the last 10 years and 109% in the last five years.

Bank of Nova Scotia

Another banking heavyweight that makes the list is the Bank of Nova Scotia which has exposure to high-growth banking markets, making it a top long-term bet right now. In its last quarterly report, BNS managed to deliver positive revenue and earnings growth while its provision for credit losses also fell on a sequential basis.

In Q1 of 2021, BNS reported an adjusted net income of $2.4 billion which was 3% higher than its prior-year period. While shares of the banking leader have gained just 35% in the last decade, it provides investors with a tasty dividend yield of 4.6%.

Fiera Capital

A small-cap investment management company that trades on the TSX, Fiera Capital has a really attractive dividend yield of 7.7%. Fiera Capital provides asset management services to institutions and high net-worth individuals in North America, Europe, and Asia. It ended 2020, with over $180 billion in assets under management, compared to just $10 billion back in 2005.

In 2020, its adjusted net earnings stood at $146 million while its EBITDA margin in Q4 was a healthy 31.1%. The company has a dividend payout ratio of less than 50% which suggests it has enough room to increase these payments going forward.

Great-West Lifeco

A financial services holding company that engages in life and health insurance as well as retirement, investment, asset management, and reinsurance businesses in North America, and Europe, Great-West Lifeco is one of the top dividend-paying stocks on the TSX.

Its forward yield is close to 5% and its low valuation makes the stock attractive to income and contrarian investors. Great-West Lifeco is trading at just 11x earnings which is lower than financial services peers that have a price-to-earnings multiple between 12.5x and 15x.

Analysts tracking the firm expect sales to rise by 13.3% to $62.2 billion in 2021 and by 5% to $65.3 billion next year. Earnings growth is also forecast to grow at an annual rate of 8.5% in the next two years.

Manulife Financial Corp.

The final stock on the list is Manulife Financial Corp., a company that provides a wide portfolio of financial services to clients. It is the largest insurance company in Canada and is among the 10 largest insurance providers in the world.

Manulife operates via a multi-channel distribution network and is considered a blue-chip company due to its leadership position, focus on risk management, massive reach, and a wide array of solutions.

Manulife stock has a forward yield of 4.15%. The company’s management expects earnings to grow at an annual rate of between 10% and 12% over the medium term. Further, the company’s payout ratio target of between 30% and 40% will allow the company to increase payouts in 2021 and beyond.

The Final Takeaway

The banking and financial services sectors have been under the pump due to the ongoing pandemic. Investors were concerned over Canada’s rising unemployment rates that would increase default rates as well as the banking industry’s exposure to the beaten-down energy sector, coupled with a low-interest rate environment.

But in the last year, these stocks have made a strong comeback due to rising demand for mortgages and federal benefits provided by the Canadian government.

In case you don’t have exposure to the banking sector, it might be a good time to buy these undervalued stocks that have attractive dividend yields.