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Dale Jackson

Personal Finance Columnist, Payback Time


You see them on the main streets of every Canadian town and city. The big Canadian banks often draw the ire of fee-burdened customers, and the joy of shareholders.

Scotiabank, Bank of Montreal, CIBC, TD and RBC are the most widely held stocks by Canadian retail investors. If you hold a Canadian equity mutual fund or exchange traded fund (ETF), you probably have a stake in all five banks.

And for good reason. They pay among the highest and most reliable dividends. The big Canadian banks have only raised – never cut – their dividends. Payouts continued even through the great depression of the 1930s and the global financial meltdown of 2008.

Some are even raising their dividends this quarter in the face of rock-bottom energy prices and sluggish GDP growth.

Here’s a look at the current annual dividend yields for the big five Canadian banks:     

Scotiabank: 4.2%

Bank of Montreal: 4%

CIBC: 4.7%

TD: 3.8%

RBC: 4.1%

There is, however, a downside to saving for retirement by investing in Canadian bank stocks. Their popularity can also be attributed to the fact that there are few safe alternatives. Government and bank bond yields don’t come close to bank dividend yields. Investors hoping to draw income are forced to take the risk of those same dividend stocks falling in value on equity markets.

On the bright side, big Canadian bank stocks have proven resilient through the 2008 global financial meltdown and appear to be withstanding the test of the recent decline in energy prices. Still, all five banks are heavily exposed to the vulnerable housing market – and even RBC’s chief executive Dave McKay said the bank is monitoring the situation closely.

The big five banks are very similar but each has its own niche. Some have more international exposure, some have more U.S. exposure and some have different levels of exposure to certain sectors.

Which banks to own – and how much – is something you should discuss with a financial advisor.        

Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI