Canada continues to be a standout player in the globaleconomy
While Europe and China struggle with recessionary conditions,
Canada's FebruaryGDP (gross domestic product) showed a solid
1.7%gain , its fastest pace since July 2012. January's growth was
also revised higher, giving the economy its two strongest
back-to-backgains since July and August of 2011, causing
manyanalysts to raise first-quarter GDP growth estimates to 2.3%
The Canada economy continues to get a big boost from its mining
and energy industries, with growth in mining, quarrying, and oil
and gas extraction expanding 2.2%, the fifth straight increase.
Mining and quarrying alone expanded 6.4% on higher output at
potash mines. Output in oil and gas extraction rose 1% from
higher oil production.
Canada is also benefiting from the fact that it didn't fall as
deeply intorecession as many other countries did during the
financial crisis. No Canadian bank needed abailout , housing
prices did not collapse, and Canada's growth consistently
outpaced its peers among the Group of Seven industrialized
With strong mining and energy industries and a smaller economic
contraction providing tailwinds, Canada's economy continues to
grow in a challenging environment.
That's why I am such a big fan of Canadian banks, which are a
great way for investors tocash in on that growth. They provide
leveraged exposure to economic growth, but they're typically less
aggressive with their use ofdebt andleverage than their American
counterparts. After the financial crisis of 2008, company risk
andleverage ratios became a much higher priority to investors.
Many of Canada's biggest banks also carry outsize dividend
yields, something Elliott Gue looks for in his
newsletter. With yields as high as 4.8%, Canada banks pay more
than twice theyield on the 10-year Treasury, even after its
recent jump to 1.96%. That's a solid stream ofincome in an
environment of record-low interest rates.
Here are six Canadian Banks cashing in on the trend with yields
up to 4.8 %.
From the group I'm looking at
Canadian Imperial Bank (
because of its low valuation and
Bank of Montreal (
for its highdividend .
Canadian Imperial Bank
With amarket cap of $31 billion and more than 1,100 branches,
Canadian Imperial provides investors with significant exposure to
Canadian growth. Analysts are projectingearnings growth of 3%
thisyear and 7% in 2014. That has Canadian Imperial trading with
a forwardP/E (price-to-earnings) ratio of just 9 times, below its
10-year and peer averages of 11 times. The bank carries a
soliddividend yield of 4.7%.
Bank of Montreal
Bank of Montreal is also one of Canada's largest banks, with
amarket cap of $39 billion and over 1,500 branches. The company's
share price has been mostly range-bound for the past two years.
That hasshares trading at a discount to historical value, with a
forward P/E ratio of 10 times compared with its 10-year average
of 12 times. Bank of Montreal's share price has supported the
bank's dividend yield of 4.8%. The bank'sdebt-to-equity ratio of
15 % is well below its peer average of 215%, a signal that Bank
of Montreal is running a much more conservativebusiness model to
Risks to Consider:
The Canada economy is highly leveraged against the success of
its energy and mining industries, which both are quite sensitive
to business cycles. Ongoing economic weakness in China and Europe
could disrupt demand.
Action to Take -->
The Canadian economy continues to demonstrate consistent growth,
driven by strength in its energy and mining sectors. A great way
for investors to cash in on that trend is with Canada banks.
Canada banks not only provide leveraged exposure to economic
growth, they also carry outsize dividend yields.
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