Bank stocks are the perfect investment for any tax-free savings account (TFSA) or RRSP right now. The increased risk of bankruptcy and default during the COVID-19 crisis caused some volatility in stocks in the financial sector. Nevertheless, Canadian banks are among the strongest and best capitalized companies in the world.
With regard to shares listed on the stock exchange Toronto Stock Exchange, banks like Toronto-Dominion Bank (TSX: RY)(NYSE: TD) and the Royal Bank of Canada (TSX: RY)(NYSE: RY) are the main dividend titles for July. Each investment involves a certain risk. That is why a long-term mindset allows aspiring Canadian retirees to succeed in the stock market.
Bank stocks could go down or up over the next year, but over the next five years, if history suggests, the market value of these assets will only increase. Right now they are selling for a discount compared to the start of the year.
Shareholders are selling the Toronto-Dominion Bank for 16.66% less than at the start of 2020. Likewise, the Royal Bank of Canada is trading 9.54% less. In comparison, the S & P / TSX l Composite IndexThe percentage change is 9.97%.
TD Bank stocks
In a press release from the Toronto-Dominion Bank last month, the firm commented on the impact of reduced commissions and fees at TD Ameritrade in its US retail sector.
“TD Ameritrade has contributed $ 234 million ($ 174 million) in the segment’s results, a 9% decrease (11% in US dollars) compared to the same quarter of last year, mainly reflecting lower trading commissions and higher operating expenses, partially offset by a increased trading volumes. “
In November 2019, Charles Schwab reduce fees to $ 0 for most equity transactions. Competitors such as TD Ameritrade and Ally Bank quickly followed suit. Charles Schwab subsequently offered to acquire TD Ameritrade. Charles Schwab is already a major shareholder in the company.
The Toronto-Dominion Bank plans to close the sale at the end of the year. The losses of the US retail division and the impending sale of this asset may reduce the market value of TD Bank shares.
Royal Bank of Canada
Royal Bank of Canada announced a $ 426 million increase in credit losses due to the COVID-19 pandemic last month in its earnings press release.
“The unprecedented challenges brought on by the COVID-19 pandemic increased the allowance for credit losses by $ 2,830 million, up $ 2,404 million from last year.”
The bank is also working diligently to increase reserves in light of the economic impacts of COVID-19. The bank raised its bad debt provision (PCL) to loan ratio to 165 basis points (bp), up 139 bp from the previous quarter.
The PCL ratio varies according to the risk of default on loans and represents an amount of money that the bank sets aside to cover losses related to lending activities. This ratio is essentially a tool that the bank uses to guard against insolvency.
Should you buy these hot bank stocks?
Banks will certainly lose money on loans during this economic crisis. Other than that, this health emergency will not last forever. When the economy returns to normal, credit losses will return to normal levels, as will the PCL ratio.
While there may be some short and medium term volatility in the financial sector, Canadian investors really cannot do better than bank stocks. When it comes to high-income securities, it’s not much safer than the politically powerful banking sector.
The dividend yield of the Toronto-Dominion Bank is more than 5% at the current share price. Royal Bank of Canada is slightly lower, issuing dividends amounting to a yield of 4.65%.
In addition, these bank stocks have an excellent reputation for distributing dividends, even in times of economic crisis.
Fool contributor Debra ray has no position on any of the securities mentioned.