Is it a Good Idea to Diversify Your Financial Portfolio into Canada as Well?

Investing in Canadian StocksThe Canadian economy has turned the corner in recent months, driven in large part by an increase in business investment, gains in household wealth, and expansionary prospects vis-à-vis fiscal policy. The Canadian economy is heavily reliant on commodity prices, and a turnaround in the price of crude oil, gold, iron ore and related commodities is helping to boost Canadian GDP. The Bank of Canada (BOC) expects inflation to surpass the 2% benchmark by the end of 2018.

Wage growth is increasing in Canada, and this bodes well for clearing excess capacity currently in the market. The Government of Canada is working hard to adopt an expansionary policy with tax and government spending, to encourage economic growth. Towards the end of the year, the Canadian government is likely to pull back on quantitative easing (monetary stimulus) as the economy gains traction and growth continues. Key drivers of changing monetary policy include inflation rate projections and employment prospects. The housing market remains a key growth area in Canada, and increased interest rates will certainly put a damper on the boom that is taking place. The Canadian economy has proven to be resilient with massive investments in FinTech, social housing and infrastructure-related projects, including education.

Ending the Year Strongly

Various graphics indicate that the housing market is overheating in areas like Vancouver and Toronto, while the rest of Canada is showing modest but steady growth. The strongest drivers of economic growth in Canada are currently seen in housing starts in 2017, as well as the propensity of businesses to invest in the Canadian economy. The 3-month moving averages through June 2017 indicate strong trends are likely to continue over the next 12 months. This information was presented by the National Bank of Canada and Teranet. Of equal importance is the sharp uptick in real GDP growth and a strengthening of the labour market, notably the employment rate and the average hourly earnings. With these economic indicators showing strong positive growth, it is clear that the Canadian economy is on track for a bullish finish to 2017.

Investing in Canadian Banks

Canadian banks are once again performing strongly, and Canadian bank dividends offer opportunities to earn money on stocks that are performing well. Investing in stocks generates positive yields in two possible ways – dividends or appreciation of the stock. If you buy low and sell high, your stock has appreciated, but it’s possible to earn profits from a stock that doesn’t necessarily appreciate dramatically over time by way of dividends. These are regular cash payments from the company which are deposited into your online brokerage account.

Canadian companies that pay dividends are rewarding their shareholders for their investments. When the company profits, shareholders enjoy a percentage – albeit nominal – of the company’s gains. There are several notable Canadian dividend stocks, namely bank stocks that have been performing incredibly well of late. These include the National Bank, the Bank of Montréal, and the Bank of Nova Scotia. The benefit of dividend-related income streams is that they are treated favourably by the Canadian tax authorities.

Dividend investing Canada bank options vary from substantial to moderate, with several banks leading the way. Currently, the Toronto Stock Exchange listed banks that are performing best include Canadian Imperial Bank of Commerce, The National Bank of Canada, and the Bank of Montréal. The data for these bank stocks provides the following insights:

  • Canadian Imperial Bank of Commerce – the stock is currently trading at $104.79 per share, with a 52-week low of $97.52 and a 52-week high of $120.83. The dividend is $1.30, with a yield of 4.96%. The earnings per share are $11. The company’s market capitalization is $45.91 billion with a low price/earnings ratio of 9.53.
  • The National Bank of Canada – this stock is currently trading at $57.69 on the Toronto Stock Exchange. It has a 52-week low of $45.11 and a 52-week high of $59.12. The dividend is $0.58 and the yield is 4.02%. The earnings per share is $4.77, and the company’s market capitalization is $19.68 billion. The price/earnings ratio is a respectable 12.09.
  • The Bank of Montréal – this stock is currently trading at $89.29, with a dividend of $0.90, and a yield of 4.03%. The 52-week low is $83.43, and the 52-week high was $104.15. The company has a market capitalization of $57.92 billion, and a price/earnings ratio of just 10.98. The current earnings per share is $8.13.

5 Responses to “Is it a Good Idea to Diversify Your Financial Portfolio into Canada as Well?”

  1. DivHut

    Sep 04. 2017

    Canada has come back in a strong manner in recent years. Gold and silver much higher along with oil. As you mentioned, Canada is heavily skewed towards commodity prices and these days those higher commodity prices are translating to an improved economy. I’m already invested in the large Canadian banks for some time. I hold TD, BNS and RY but wouldn’t mind adding more. Thanks for sharing.

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  2. walt

    Sep 04. 2017

    besides canadian bank stocks are there any other good stocks like reits and industrial companies.
    thank you

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  3. Pellrider

    Oct 17. 2017

    I like the big banks. Then Bell Canada, Rogers, etc are there. Hydro one gives dividends too, I think. There are insurance companies. Then, real estate investment trusts like REI.UN.

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  4. dividendgeek

    Oct 31. 2017

    Totally think so. Canada has done very well lately. About 7% of my portfolio is in Canadian stocks. International stocks in general have done well this year. With commodity prices going up (thanks to economic recovery), I would think Canadian stocks would go even higher.

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  5. dividendgeek

    Nov 10. 2017

    It is definitely a good idea to diversify. Canada is too heavy in commodities and finance. In a way it would reduce the diversification. Having exposure to non-US stocks is definitely a good hedging strategy. I have exposure through (ETF)VXUS.

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