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Canada's big banks are some of the best long-term choices for investors, and there is currently a huge opportunity to profit by buying Canadian bank stocks.
Here's a list of some of the Canadian bank stocks I'm buying (at a significant discount) and why.
First, let's understand the actions of Canadian banks.
There are more than a few reasons why big banks are stellar investment options. Part of that is due to the very tasty (and stable) dividends they offer. But one of the main reasons that is often overlooked is how and where banks operate.
In Canada, large banks enjoy an overwhelming majority of the market, so much so that the market share of smaller banks is often considered nothing more than a rounding error.
By extension, it means that banks enjoy a huge defensive moat that provides a stable and recurring income stream. It also means that big banks need to turn to international markets outside Canada to drive growth.
And that's where a couple of Canadian bank stocks come in, with enormous long-term appeal.
Bank Stock #1: Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD) is Canada’s second-largest bank. In addition to its massive presence in Canada, TD also enjoys an even larger network in the U.S. with more than 1,100 branches stretching from Maine to Florida.
In the most recent quarter, that U.S. segment posted net revenue of $580 million, down 59% from a year ago.
And it's that decline, coupled with a 12% drop in the share price this year, that makes TD one of the Canadian bank stocks I'm buying right now.
One of the main reasons TD's US results were weak was that the bank set aside huge amounts to cover fees arising from ongoing investigations. Those investigations are being conducted by US regulators and are related to TD's inability to report suspicious transactions.
Some experts believe the total amount of those fines will rise into the billions, which has served as a catalyst for some investors to look elsewhere.
What potential investors should consider is that TD is a long-term investment. The bank will bounce back from these current lows. And while the bank's stock is trading at a steep discount, its quarterly dividend has increased to a yield of 5.43%.
In short, long-term investors expecting TD to recover can buy the stock on the dip and reinvest those dividends while waiting for that eventual recovery.
Bank Stock #2: Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is another Canadian bank stock that I am buying in case of a dip. In the case of Scotiabank, the share price has fallen by almost 10% over the past two years.
Like TD, Scotiabank has turned to international markets to drive growth. A key difference is that Scotiabank has aimed further south than the US market. Specifically, the bank has set its sights on the Latin American markets of Mexico, Chile, Peru and Colombia.
The four countries are part of a trade bloc known as the Pacific Alliance, whose goal is to increase trade between its members. Scotiabank's presence in all four countries has allowed it to post solid profits over the years.
Those markets can provide greater growth, but they also carry greater risk, particularly in Chile, Peru and Colombia, where there is more instability. As a result, Scotiabank is now prioritizing growth efforts in both Mexico and the United States.
That volatility and shift in focus represent a unique opportunity for investors to pick up Scotiabank shares at a significant discount. It also means the bank's dividend has risen to an impressive, if unlucrative, 6.79%.
In other words, investors looking for a long-term stock that can provide juicy income today and long-term growth prospects will be hard-pressed to find a better option than Scotiabank.