6 Safe Canadian Bank Stocks With High Yields


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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% from 1.5%.

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 economies.

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 Top 10 Stocks 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 ( CM ) because of its low valuation and Bank of Montreal ( BMO ) 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 reduce volatility.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks
Referenced Stocks: BMO , CM

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