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Canadian banks
#1
With Canadian banks being closely aligned with our oil industry it creates great valuations that seem to be available in this market, across our border in Canada. Recently, I purchased my first position in TD; however, I'm looking at the other big boys within the Canadian banking system. This could make good diversification in the long haul and a different way to allocate funds in this market rather then the oil/energy sector which I'm a little top heavy.

TD 40.13

p/e 12.47

eps 3.22

yd% 4.00

div 1.61

52 week range 39 to 53+


RY 58.62

p/e 11.74

eps 4.99

yd% 4.10

div 2.42

52 week rang 56 to 76+


CM 69.85

p/e 10.11

eps 6.91

yd% 4.9

div 3.52

52 week range 69 to 97+


BNS 48.32

p/e 10.75

eps 4.5

yd% 4.4

div 2.16

52 week range 47 to 68+


BMO 56.51

p/e 11.88

eps 4.76

yd% 4.4

div 2.52

52 week range 56 to 78+


As you can see Canadian banks are hitting at near 52 week lows and may create long term value to a portfolio. I read a lot about XOM/CVX/HAL/COP/RDS.B/BP/ but not a whole lot about these Canadian banks even though they seem to have a lot skin in the oil industry affecting their shares. Maybe I'm missing something but there seems to be great opportunity to be made, right? I'm talking about long term value not money made overnight.
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#2
Hi rayray,
Canadian banks provide great value here. As you pointed out, most of them are attractively valued.

I wrote an article earlier this year that the banks would face continued weakness through the year and would be a great time to build good positions for long term holding. Article post here.

An update since then:
- Canada is already in recession, although Bank of Canada is using every word in their vocabulary to avoid using the R-word.
- The most recent interest rate cut came last week after the cut in Jan 2015. The banks have decided to take a bigger cut by increasing the spread between overnight interest rate and prime rate. See some of the details I shared last week when I added to my TD position.

Also pay attention to the risks - the Canadian housing market is extremely overheated and even the Bank of Canada has acknowledged that the market is probably 20-30% overvalued and is hoping for a soft landing.

To answer your oil question: See this article from earlier this year. According
to this BMO analyst, oil makes about 3% of total lending portfolio and about 10% of the Capital Markets division. Ive read some reports saying that BNS has a higher exposure and BNS took a bigger hit than the others - but BNS was also seeing some issues with its Latin American operations last year and closed some operations and laid off ppl.
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#3
(07-22-2015, 06:17 PM)Roadmap2Retire Wrote: Hi rayray,
Canadian banks provide great value here. As you pointed out, most of them are attractively valued.

I wrote an article earlier this year that the banks would face continued weakness through the year and would be a great time to build good positions for long term holding. Article post here.

An update since then:
- Canada is already in recession, although Bank of Canada is using every word in their vocabulary to avoid using the R-word.
- The most recent interest rate cut came last week after the cut in Jan 2015. The banks have decided to take a bigger cut by increasing the spread between overnight interest rate and prime rate. See some of the details I shared last week when I added to my TD position.

Also pay attention to the risks - the Canadian housing market is extremely overheated and even the Bank of Canada has acknowledged that the market is probably 20-30% overvalued and is hoping for a soft landing.

To answer your oil question: See this article from earlier this year. According
to this BMO analyst, oil makes about 3% of total lending portfolio and about 10% of the Capital Markets division. Ive read some reports saying that BNS has a higher exposure and BNS took a bigger hit than the others - but BNS was also seeing some issues with its Latin American operations last year and closed some operations and laid off ppl.

R2R,

Good info here, I'll have to read your posts and posted articles more thoroughly. These investments are something really good to look at as an investor. The way I look at it is that there are always values to be bought but an investor sometimes has to pay attention to what the market is throwing at us. If we take what the market is giving us, good valuations, one doesn't have to worry about the market being overvalued or even diversification, everything will take care of itself with good investments and time.

I watch a lot of the home improvement shows and I'm blown away how much real estate costs in Canada! I didn't know that Canada was in a recession? This could be a great opportunity for DGI's!

Good luck with the recession R2R--hopefully it doesn't affect you and your family too much.
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#4
(07-22-2015, 08:00 PM)rayray Wrote:
(07-22-2015, 06:17 PM)Roadmap2Retire Wrote: Hi rayray,
Canadian banks provide great value here. As you pointed out, most of them are attractively valued.

I wrote an article earlier this year that the banks would face continued weakness through the year and would be a great time to build good positions for long term holding. Article post here.

An update since then:
- Canada is already in recession, although Bank of Canada is using every word in their vocabulary to avoid using the R-word.
- The most recent interest rate cut came last week after the cut in Jan 2015. The banks have decided to take a bigger cut by increasing the spread between overnight interest rate and prime rate. See some of the details I shared last week when I added to my TD position.

Also pay attention to the risks - the Canadian housing market is extremely overheated and even the Bank of Canada has acknowledged that the market is probably 20-30% overvalued and is hoping for a soft landing.

To answer your oil question: See this article from earlier this year. According
to this BMO analyst, oil makes about 3% of total lending portfolio and about 10% of the Capital Markets division. Ive read some reports saying that BNS has a higher exposure and BNS took a bigger hit than the others - but BNS was also seeing some issues with its Latin American operations last year and closed some operations and laid off ppl.

R2R,

Good info here, I'll have to read your posts and posted articles more thoroughly. These investments are something really good to look at as an investor. The way I look at it is that there are always values to be bought but an investor sometimes has to pay attention to what the market is throwing at us. If we take what the market is giving us, good valuations, one doesn't have to worry about the market being overvalued or even diversification, everything will take care of itself with good investments and time.

I watch a lot of the home improvement shows and I'm blown away how much real estate costs in Canada! I didn't know that Canada was in a recession? This could be a great opportunity for DGI's!

Good luck with the recession R2R--hopefully it doesn't affect you and your family too much.

Well, I dont think the official classification is recession yet. There was contraction in the first quarter, and I think second quarter will probably see the same - but there are few different things at play here. BoC does not want to use the word recession and when asked by reporters, Stephen Poloz quipped that its not really helpful to use that word. Some economists are also commenting along the same lines saying that a recession is not just a contraction over two consecutive quarters, but also has to be accompanied by job losses - which we arent seeing yet. But I know for a fact that the western provinces are hurting - esp Alberta. We'll have to wait and see how things play out.
There have also been rumours saying that there is also pressure from the federal government...this being an election year, they are pushing the BoC to ease the monetary policy - so that a full blown recession is atleast delayed until the elections are done. The current election date is tentatively Oct 19, but again there are rumours that an early election may be called.

These are great times for building solid positions in Canadian banks. Like you know, Canadian banks are well run, much more conservative than the rest of the financial industry, and long term prospects are always their top priority. The institutions have a spectacular record of continuous dividends paid since 1829 (BMO), 1832 (BNS), 1857 (TD), 1868 (CM), 1870 (RY).
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#5
[quote='Roadmap2Retire' pid='8004' dateline='1437617229'

These are great times for building solid positions in Canadian banks. Like you know, Canadian banks are well run, much more conservative than the rest of the financial industry, and long term prospects are always their top priority. The institutions have a spectacular record of continuous dividends paid since 1829 (BMO), 1832 (BNS), 1857 (TD), 1868 (CM), 1870 (RY).
[/quote]

Besides their dividend payment history, I don't think any of them have ever CUT the dividend, which is even more impressive!

Buy and add to the banks when the price drops and watch your long term yield continue to grow.

Just a side note: Setup a one stock retirement fund for the grandkids, BNS in 2007. Price was 51.00 and dividend 1.68/sh, with yield of 3.3% Added funds periodically and their current yield on their total investment is now 5.25%. Once they take over the stock and begin adding funds I expect they will be able to retire quite young with this one investment. BNS history suggests it.
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#6
Nicely done, cannew. Investing in Canadian banks are a great way to build wealth over time. I think I might make it a resolution to purchase a few shares every few months to build a sizeable position.
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#7
I'm getting conflicted info on the internet about Canadian stocks and being a U.S. resident concerning taxes.

I know about the Foreign Tax Deduction when securities are held in a brokerage account but that's not the issue. I've read that as long as Canadian stocks are held in a retirement account they will not be subjected to foreign taxes due to a Treaty between the U.S. and Canada. However, I noticed that people are running into a problem where taxes are being withheld using certain brokers even in a Roth account? I believe Dividend Growth Investor (DGI) has run into this problem and was never able to resolve the issue through, I believe, ShareBuilder?

Anyone else running into this problem?

I emailed Vanguard and hopefully will be getting an answer this week.
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#8
I recently did quite a bit research on this and it was a tough choice. I liked several of them but ended up buying myself a few shares of Canadian International Bank Of Commerce. The price has declined a tiny bit since then and I'm going to put another buy order in tomorrow.. probably putting it a bit lower than what it's trading at tomorrow and hoping it will hit at some point during the week while I'm gone.

The Canadian economy in general looks a bit dodgy right now but the banks still look really stable so I think there are certainly some good buying opportunities. Low P/E ratios, growing EPS and dividend and a good starting yield. When you couple that with conservative management I think they are a pretty damn safe bet if you have a long time frame.
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#9
Okay, browsed through the 2008 technical explanations of the Tax Treaty between the United States and Canada and this is what I found in:

Paragraph 7 Article XVIII

"...in most cases, no portion of the ROTH IRA will be subject to taxation in Canada."

It kind of answers my question except for

"...in most cases..." lol
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#10
rayray,
That does not seem to be very clear at all. Im sorry, I am not familiar with the specifics from the other side of the border. I know some bloggers hold Cdn banks in Roth account (again, I dont really understand what a Roth vs. Roth/IRA difference is, if there is a difference). Of the top of my head, there's DivHut - you can contact him and find out if hes taxed on his Cdn bank dividends.
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