Investing in National Bank of Canada Stocks

More seasoned investors and advisors will say that bank stocks are among the most stable investments. Some bank stocks may even provide decent returns on a regular basis, while having the promise of long-term growth. One such bank stock of interest is National Bank of Canada stocks.  

Although the National Bank of Canada is not among the Big Five Banks of Canada (but manages to make its way into sixth place), it is still worth looking into its stock and determine whether it’s worth investors’ time and money.  

So, are National Bank of Canada stocks a good investment? Is National Bank of Canada a good stock to buy? In this article, WealthProfessional seeks to provide some insight.  

A look at National Bank of Canada stocks (TSX:NA) 

So now that we know what stock indicators to look at, how does the National Bank of Canada rank?  

Here’s a look at their stock indicators.  

First, let’s look at National Bank of Canada’s market cap.  

While it does seem like National Bank of Canada’s stock appears volatile and subject to increases and declines every now and then, this only means that its monetary value is constantly in flux. This sort of volatility in bank stocks is to be expected.  

Investors should note fluctuations can be due to various factors. Inflation, company performance, war, changes in technology, changes in government policy, and other events can affect the banking sector. Looking at the bank’s market cap history, it can be gleaned that National Bank of Canada stock bounces back quickly from market downturns that may cause their market cap to dip.   

National Bank of Canada P/B Value Ratio: 1.61 (as of May 2024) 

With a P/B value ratio of 1.61 it can be concluded that the stock is quite overvalued. Ideally, a good stock should have a P/B value of 1 or lower, indicating that it’s a stock that is selling for less.  

However, NA’s P/B value is still lower than the acceptable limit of 3.0. So, even if it appears to be overvalued, the stock is still viable. It helps to look at the other indicators to determine whether NA stock is a good investment.  

National Bank of Canada P/E ratio: 12.1 (as of May 2024) 

With a P/E ratio of 12.1, NA stock is deemed viable. The average P/E ratio ranges from 20 to 25 depending on the industry, so any value lower than that indicates a good stock that is not overvalued.   

National Bank of Canada Dividend Payout Ratio: 42% 

The DPR of National Bank of Canada currently stands at 42%, meaning that the bank pays out 42% of its earnings as dividends. This also means that the rest of the earnings are likely used to finance operations and growth strategies, which is good for investors and the bank's sustainability. The industry average is around 35% to 55%. So, given that this is within the average range, investors can consider NA’s stock DPR as acceptable.  

National Bank of Canada Dividend Yield: 3.73% (as of May 2024) 

Typically, a dividend yield of 2% to 6% is considered good, but there are several factors to consider if NA stock’s dividend yield makes it a good investment for the individual investor. At 3.73%, National Bank of Canada stocks are well within the range of being an acceptable investment. However, investors should refer to their own financial goals to decide if this fits their needs.  

National Bank of Canada Stock Cheat Sheet 

History of National Bank of Canada 

As with most of the big banks of Canada, National Bank of Canada’s origins date back hundreds of years.  

In the year 1859, French-speaking businessmen in Ontario and Quebec were keen on establishing a local bank, so they persuaded the provincial legislature to create a law for this exact purpose. So, on May 4, 1859, the Banque Nationale was founded. 

Some years after, Banque Nationale had terrible losses during the banking crisis sparked by the financial panic of 1873 and panic of 1884. The bank managed to survive, though, and continued to operate. But in the 1930s, Banque Nationale again came under severe financial stress due to the Great Depression. This time, a merger was arranged with Banque d’Hochelaga with the assistance of the province's legislature to strengthen the bank. The then-merged bank was renamed as "Banque Canadienne Nationale" (BCN), which in English translates to "Canadian National Bank". 

Some of National Bank of Canada’s notable events in its 165-year history include:  

• In 1968, the then-called Banque Canadienne Nationale, with the cooperation of other banks, introduced the first credit card issued by Canadian banks, Chargex. 
• In 1979, BCN acquired Laurentide Financial Corporation.  
• Most notably, in November 1979, BCN and its rival Provincial Bank of Canada agreed to a merger. The two banks decided to rebrand the new resulting bank into "National Bank of Canada". This was one of the largest bank mergers of that time. 
• In the 1980s, the newly founded National Bank of Canada continued to grow via several acquisitions, including brokerage firm Lévesque Beaubien and Geoffrion Leclerc only a year later. These M&As created Lévesque Beaubien Geoffrion.  
• In 1993, NBC sold its lease financing operations to GE Capital, while also acquiring the assets of General Trust of Canada. 
• National Bank of Canada made its first step into expanding to the North American market. In 1993, NBC established a branch in Florida and California. These would be known as their subsidiary company, Natbank.  
• In 1995, NBC established a branch in Cuba to assist Canadians doing business there.  
• 1999 saw NBC’s purchase of First Marathon, a brokerage firm based in Toronto.  
• In 2011, National Bank ranked third in Bloomberg's list of "The World’s Strongest Banks". 
• Then in 2018, NBC took 41st place on Go back Finance's list of the 50 strongest banks. 
• Sometime in August 2021, National Bank brokerage became the second Canadian financial institution to offer free online direct brokerage, right behind Wealthsimple. 

Headquartered in Montreal, National Bank of Canada is Canada’s sixth largest commercial bank.  

The bank currently has branches in most Canadian provinces, handling 2.4 million personal clients. National Bank is the largest bank in Quebec, and the second largest financial institution in the province, right behind Desjardins credit union. 

What is National Bank of Canada’s “stock split”? 

Investors should be advised that NBC has had an instance of a “stock split” in its long history.  

The stock split occurred on February 14, 2014. A stock split was done in a bid to make NBC stock more affordable, and therefore attractive to investors. National Bank’s stock split was a 2-for-1, effectively doubling each share of stock already in the hands of investors.  

Should you invest in National Bank of Canada stocks? 

Based on its stock market performance in the last 6 months, investors can consider National Bank of Canada stock, but only if it aligns with their risk tolerance, time horizon, and financial goals.  

National Bank of Canada’s stock price is at a modest $115 per share, making it a decent entry into investing in bank stock. National Bank is based in Quebec, minimizing its exposure to the national mortgage market, and reducing its volatility.  

Analysts expect that National Bank stock will remain stable, since it has a long history of safe dividends and has performed strongly since the last decade. 

Apart from being less exposed to mortgage renewals, National Bank stock has a low P/E ratio with a good dividend yield. This can be a welcome investment for investors who need to build a solid nest egg.  

The bank takes a conservative and defensive philosophy, especially when it comes to market corrections. Its management is comprised of a team with a wealth of experience, and one of its most tenured members was promoted to Chief Risk Officer. Overall, National Bank of Canada stock can be an excellent long-term investment. 

Here’s a video from Morningstar touting the good qualities of National Bank of Canada stocks. According to the presenter, it’s a niche stock that can be a good investment. Although it’s at the bottom of the Big Six banks, its 3 to 4% dividends for the past decade make it a good investment. Watch the video to know more.  

What are the indicators you should look at in a bank stock?  

When looking at bank stocks as investments, it's sound practice to look at certain indicators to assess their viability. Here are the indicators:  

Market Capitalization (market cap) 

This is the value of all a company’s shares. It’s important to look at a company’s market cap, since this can be taken as an indicator of its performance relative to its industry and competitors.  

market cap = total number of outstanding shares x share price 

Price-to-book or (P/B) value ratio  

This ratio compares the current market cap of a company with its accounting value. If a company’s stock has a low P/B ratio, this is considered a good investment since this shows they are paying less for the actual book value of the stocks. 

P/B value ratio = company’s stock price per share ÷ book value per share 

Earnings Per Share (EPS)  

This can be used as an indicator of how much money a company earns for each share of stock.  

In many cases, the EPS can be taken as a reliable measure of a company’s value. 

EPS = (net income – company's preferred dividends) ÷ number of outstanding shares 

Price to Earnings (P/E) ratio 

This is the ratio that shows whether the company’s stock price is higher or lower compared to the company’s revenues. 

P/E ratio = current share price ÷ earnings per share (EPS) 

Dividend Payout Ratio (DPR)  

DPR shows how much a company pays out to investors in dividends compared to the earnings of the stock. This can be a good measure of a company’s performance, as the DPR is an indicator of a company’s earnings and how well it can cover dividends.   

DPR = annual dividend per share ÷ EPS 

Dividend yield  

This is the financial ratio that shows how much a company pays each year relative to its stock price.  

In most cases, companies pay dividends yearly although some companies may pay out dividends on a quarterly basis. 

Dividend yield = annual dividend per share ÷ price per share 

Whether to choose national bank of Canada stocks 

When it comes to deciding whether a bank stock (or any other type of stock) is worth the time and investment, the individual investor should first determine their investment goals. If you’re approaching retirement age, your goals may lean more towards building a portfolio of income-generating assets.  

This means collecting stocks, mutual funds, and other vehicles that can provide sustainable returns for the long term, while delaying taking money out of your retirement fund for as long as possible.  

For this purpose, investors can also consider stocks that are dividend aristocrats, or stock in companies that have consistently increased their annual dividends for at least 25 years. Younger investors with longer time horizons, meanwhile, can choose other bank stocks that have more potential for their stock price to appreciate over time.  

Are you thinking of making National Bank of Canada stocks part of your portfolio? Why or why not? Let us know in the comments!