Canadian banks offer investors above-average dividend yields, low-to-moderate p/e’s; and above-average potential for long-term capital gains.

We’ve long recommended that most Canadian investors hold two or more of the Big Five Canadian banks—Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of their importance to Canada’s economy.

Banks remain key lower-risk investments for almost all investor portfolios. As well, the Big Five all have long histories of annual dividend increases.

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Supercharge your portfolio through stocks in top Canadian banks

Canadian bank stocks have always been some of the best income-producing securities for investors.

We believe Canadian bank stocks are still well-positioned to weather potential downturns in the economy, contrary to pessimistic forecasts from some in the business media. These top stocks trade at attractive multiples to earnings and continue to raise their dividends.

Don’t let investor worries about “fintech” dissuade you from buying stocks in Canadian banks

Some investors fear the banks will lose out to “fintech” (upstart financial technologies, comparable perhaps to Uber or AirBnB). Or they wonder if the banks will get caught unawares when interest rates make their long-awaited upward move.

Our view is that the banks had a long time to prepare for the inevitable rise in interest rates, and the inevitable coming of fintech competition. In fact, they will probably wind up prospering in fintech, if not dominating it, as they did in stock brokerage, insurance and other financial areas that they have entered in the past few decades.

On the whole, investors have underestimated Canada’s top bank stocks for as long as I’ve been in the investment business. As a result, the best Canadian banks to invest in are often trading at attractive share prices. Because they were growing, and cheaper in many respects than other stocks, they gave conservative Canadian investors a near-ideal combination of pluses: above-average dividend yields and long-term records of paying dividends; low-to-moderate p/e’s; and above-average potential for long-term capital gains.

That’s why I’ve continually recommended buying Canada’s top five bank stocks since the 1970s. It’s also why that advice has paid off so nicely.

Buy Canadian banks for investment quality and rising dividends

Canadian banks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That provides a hedge against inflation.

For a true measure of stability, focus on banks that have maintained or raised their dividends during economic and stock market downturns. These banks leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth. Top Canadian bank stocks are well known for their financial stability in the face of economic downturns.

Invest in Canadian banks, but don’t limit yourself only to Finance stocks for a strong portfolio

Simply put, a well-constructed stock portfolio will make your life easier and maximize your gains.

If you diversify, you improve your chances of making money over long periods, no matter what happens in the market.

Use our three-part Successful Investor approach when looking to invest in Canadian banks, or any other investment.

One key part of our three-part investing program is to diversify—spread your money out across most, if not all, of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities. Diversifying your stocks across the five sectors is more than just a safeguard: it will significantly improve your chances of making money.

The other two parts of the Successful Investor approach recommend investing mainly in well-established, dividend-paying companies with a history of rising sales if not earnings and dividends; and downplaying or avoiding stocks in the broker/media limelight.

When stocks spend time in the limelight, they tend to become overpriced, and this leaves them vulnerable to a sharp downturn on any hint of bad news. Instead, look for stocks with hidden value that are less widely recognized as attractive investments.

What most appeals to you about Canadian bank stocks?