In the ever-evolving world of investments, TSX bank stocks have emerged as enticing options, particularly in 2024. Bank of Nova Scotia (TSX:BNS) and Bank of Montreal (TSX:BMO) stand out, offering not only tempting dividend yields but also trading at what appears to be affordable valuations. Let's delve into a comparative analysis to discern which of these banking giants might be a more attractive buy in the current market.


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TSX Bank Stocks: A Pillar of Stability

For decades, Canadian banking stocks, including BNS and BMO, have been reliable sources of inflation-beating returns for shareholders. The highly regulated Canadian banking sector has provided these institutions with entrenched positions and a steady market share, ensuring stability even during challenging economic periods such as the financial crash of 2008 and the recent COVID-19 pandemic.


The conservative lending approach adopted by major Canadian banks, including BNS and BMO, has played a pivotal role in maintaining dividends across economic downturns, underscoring the robustness of their cash flows.

Comparing BNS and BMO: A Historical Perspective

Over the last 20 years, both Bank of Nova Scotia (BNS) and Bank of Montreal (BMO) have demonstrated their resilience and wealth-building potential for investors. BNS stock has rewarded shareholders with a solid 340% return after adjusting for dividends, while BMO stock has outperformed, surging over 430% in the same period.

Analyzing BMO: The Undervalued Contender

Bank of Montreal (BMO) presents itself as a bank with diversified businesses, translating to resilient and robust earnings. Its premium commercial banking franchise holds a top-four market position in North America, complemented by a strong deposit base and growing market share in its personal banking business. The high-margin wealth management business and a well-positioned global markets segment contribute to its overall strength.


BMO's impressive track record includes establishing a highly profitable banking business in Canada and securing a top 10 position in the U.S. market. With a strong balance sheet, high credit ratings, and the distinction of being the longest-running dividend-paying company in Canada, BMO currently boasts an annual dividend of $6.04 per share, reflecting a noteworthy yield of 4.8%. The consistency in dividend payouts, growing at an annual rate of 7.7% over the last 27 years, enhances its effective yield significantly.


With a total asset value of $1.29 trillion and a forward price-to-earnings ratio of 10.3 times, BMO stands as a formidable player. The bank anticipates an annual earnings growth of 7% to 10% in the medium term, trading at a 7% discount to analyst price target estimates.

Deciphering BNS: Navigating Emerging Markets Challenges

Bank of Nova Scotia (BNS) takes a distinctive approach by gaining traction in emerging markets, particularly in Latin America. Despite the promise of higher economic growth in these regions, BNS stock has faced a 32.4% dip from all-time highs, primarily due to increased risks associated with Latin American economies.


During recent earnings calls, BNS acknowledged economic contractions in Chile and Peru, prompting central banks in the region to lower interest rates. However, BNS remains optimistic, expecting economic rebounds in these countries in late 2024. Moreover, with a positive outlook for Mexico's GDP growth surpassing estimates for Canada and the U.S., BNS sees potential opportunities in the Latin American market.


Recognizing the need to strengthen its balance sheet compared to peers, BNS has outlined plans to enhance business performance in fiscal 2024. The bank pays an annual dividend of $4.24 per share, offering an attractive forward yield of 6.6%. Priced at 10 times forward earnings and trading at a 4% discount to consensus price target estimates, BNS appears to be an intriguing option.

Conclusion: Making Informed Investment Choices

As investors navigate the dynamic landscape of TSX banking stocks, the comparison between Bank of Nova Scotia (BNS) and Bank of Montreal (BMO) unveils unique strengths and considerations for each. BMO's diversified business model and consistent dividend history make it an undervalued contender, while BNS's focus on emerging markets presents both opportunities and challenges.


Ultimately, the choice between BNS and BMO rests on individual investment objectives, risk tolerance, and the assessment of each bank's strategic positioning. In a market where stability and growth are paramount, these TSX banking giants continue to offer investors avenues for long-term wealth creation.