OTTAWA: Many investors insist on owning at least one major Canadian bank stock. It’s easy to see why. After all, owning bank shares has worked out pretty well for investors over the years. The market is dominated by the so-called “big five,” which collectively command about 80% of the domestic banking market. These huge institutions also have assets in other countries, particularly the United States, but also in South America, the Caribbean, and Asia.
But if investors look a little beyond the five largest banks, they come across National Bank of Canada (TSX:NA), which is Canada’s sixth-largest bank. It’s still a formidable force; National Bank has a market cap of $19.8 billion and $230 billion of assets under management. Like the rest of North America’s major banks, National Bank’s shares rallied after Donald Trump was elected U.S. president, primarily because investors were convinced Trump’s ambitious infrastructure plans would lead to higher interest rates. This is good news for banks on both sides of the border.
Despite this rally, National Bank shares are still cheap on a forward price-to-earnings ratio. Shares currently trade hands at $57.95 each while analysts expect the company to earn $5.05 per share in 2017 and $5.32 in 2018. That puts the company at just over 11 times 2017’s projected earnings, cheaper than its larger peers. National Bank also pays a 3.9% dividend, which is higher than the payout offered by its larger peers (with the exception of CIBC, which has a 4.3% yield).