What is going on YouTube, It’s me Tamer
Azizz
and today we are going to be talking about
the Best Canadian Bank Stock that you can
get
I'm currently in the process of building my
long-term portfolio and I feel that the financial
sector is a good place to start
I personally think that the best bank stock
to buy right now is RBC and to back this up,
we are going to be using the 5 factors
that I use to screen dividend stocks
In case you don’t know what dividends are,
it’s just an amount of money that a company
would give you for basically investing with
them
The banks that we will be comparing today
are RBC, CIBC, TD, National Bank, Scotiabnk
and BMO. The first factor that we are going to be
looking at is Dividend Growth of 10% every
single year for 21 consecutive years.
Unfortunately none of these banks have actually
fit the criteria, so let’s just work with
what we have.
Comparing the big 6 right now, we see that
Scotiabank, RBC and CIBC have raised their
dividends for the longest amount of time.
9 years for Scotiabank and 8 years for CIBC
and RBC The bank that stands out the most
is RBC.
RBC stands out to me big time because there's a difference of 2.3% out of these top three stocks
which has been increasing its dividends for
8 years and has an average increase of 8.62%.
You can also argue that BMO and TD have very
high dividend increases, but the problem is they
haven't been increasing for a while and that's
just weak.
Now I would be a pretty nice guy and allow
the top three with a point each but the problem
is that there's too much of a difference between
their annual increase.
That 2.3% difference is huge for me so the
only bank that’s going to be getting a point
is RBC. Putting it at one point and the rest
of the banks at 0 points.
The second factor that we’re going to be looking
at is the consistency of the Payout Ratio.
The payout ratio basically tells you how much
the company is giving out in dividends in
relation to the income that it’s getting.
The higher the payout ratio is, the worst
it looks for a company.
The payout ratio is calculated by taking the
total amount of dividends divided by the net income.
But personally for me, I compare it to the
free cash flow instead of the net income.
The reason why I use free cash flow instead
of Net income is definitely going to be for
another video so that we don’t stray off
topic.
My criteria is to aim for anywhere between
50% and 75%. Nothing higher but if I find
something that's lower then I'm going to go
with it.
What I've done is I've calculated the payout
ratio based on free cash flow with this easy
bar graph that shows you the last 4 years
of each company's payout ratio and before
you tell me anything about the 2019 numbers
for TD Bank, this was because the payout ratio
was almost -1000 %.
I saw that and I was like PEACE! I’m
not doing that.
National Bank, CIBC and RBC all fit my criteria of a payout ratio
between 50% and 75%
The bank that stands out to me the most is definitely RBC
it's payout ratio has been consistently below 50% for the past 4 years, and that for me, is a big dealbreaker.
Otherwise I find it kind of sketchy how National
Bank and CIBC just had a sudden spike out of
nowhere in 2017 and I don't need that type of
stress in my life Nice Guy Tam is going to give each of
the three Banks 1 point each. This puts RBC at 2 points
National Bank and CIBC at one point and the
rest of the banks at 0 points how much the company
The next factor that we're going to be looking at is a dividend Yield of 4.0-4.7%
The dividend Yield tells you how much the company
is giving out in dividends per share in relation
to its current stock price taking Scotiabank
for an example these guys pay out $3.60
for each share that you own with the company
in relation to its current stock price of
56.19, you would divide / $3.60 by the current stock price
This then gives you a dividend yield
of 6.4% at the time of making this video, every single Bank had a dividend yield higher than 4% so they automatically
all get a point each. The banks that stand out to me the most are RBC and
National Bank once again you can call me crazy
but even though they have the lowest dividend
yield on my reasoning for this is something
called the market capitalization also known
as market cap it shows you the value of the
market cap is kind of complicated to describe but long story short, it shows you the value of the
actual stock itself. and it's used to compare stocks within the same sector
The higher this market cap, the more valuable
the stock and vice versa 
has the largest market cap stock has a lot
so we're going to be throwing it back to elementary school, I'll be showing you guys a pie chart!
I've included all the Canadian Bank Stocks into this pie chart
RBC has the largest market cap. If you were to compare this to CIBC, this pie chart is telling you that the RBC stock has
a lot more value than the CIBC stock. National bank has the lowest Market cap
If the value of this stock (National) grows, Chances are, so will it's market cap.
and if it's market cap grows this will
most likely be push the bank to increase it's dividends
RBC on the other hand which has the highest
market cap out of the big six has the lowest dividend yield
To me, this means that they have more of a tendency to keep on increasing their
dividends that's what I really aim for when it comes down to this dividend yield.
I don't care if you had a 13% yield or even a 2% yield
it also shows you that RBC has less of a tendency
to decrease its dividends, cut them
or even just have financial trouble the fourth
factor that I look at his consistent earnings growth
is using a metric called the EPS also known as the earnings per share
this EPS comes out every 3 months and for every
single company this metric gives investors and idea as to how profitable the company is during the 3 months.
the higher the EPS, the more income/profits the company was able to pull for the quarter
We're going to be looking at this metric for the past 5 years (21 quarters)
Which will give us a good idea as to how profitable each of these banks are
I know that we're both looking at this graph and would much rather be looking at a wall.
To make this a little more simpler, we're going to be throwing elementary school math out of the way
and then we're bringing in high school math.... I never thought I'd see the day.....
y=mx+b & R Squared if you remember
these two bad boys you're definitely going
to be giving this video a thumbs up. Basically we're going to be looking at the m value (slope) of y=mx+b
and if you kind of forgot what these two do, this m tells us how fast something grows with time.
the higher this m value is, the faster the earnings (in this case) will grow
R squared on the other hand shows you how consistently these Earnings are growing at.
Later you'll see with an example that the closer R squared is to one, the more consistent the growth is.
shout-out to my high school textbook, you came clutch #lol
The bank that had the highest R squared value was TD Bank
This is where I want to highlight the importance of R squared
The reason why this R squared value is so high is because the earnings were mostly along the trendline.
(the straight baby blue line)
this is what we're looking for because it shows us a level of consistency
let's look at CIBC's chart. Their earnings have always been
away from Blue Line which is why it has the lowest r-squared value of 0.089.
National Bank comes in second place with an R square value of 0.383
Now this is the ideal type of chart
that you want to be looking at but I'm assuming because of the big difference
in these two peaks is probably what's made the R square lower
if those peaks were closer to the trendline, the value would have been MUCH higher
Looking at the slope on the other hand, we have RBC that has the highest slope hands down.
This means RBC has been growing it's earnings at the fastest rate with time
Another thing to note is that not only does RBC
have the fastest growth rate it has the third-highest R squared value, meaning it's growing it's profits consistently as well.
Now in second place for the slope, we have TD Bank with a slope
of 2.62 Combining both factors of the slope and the r-squared values 1 point is going to
be going out to RBC, TD  and National Bank. RBC = 4 points, National =3, CIBC+TD = 2 and Scotia+BMO=1
The last point we'll be looking at is Free Cash Flow Growth
free cash flow is basically the amount of
money that a company has left after it's basically
spent on everything usually, this free cash flow is kept to pay out either dividends or interest payments
from debt the company owes. this is showing us the free cash flow growth since 2005
but just by looking at this, out brains are probably just like...
So again, let's use our favorite celebrity couple: mr. r-squared and mrs. slope
now the first one we'll be looking at is RBC which has the highest slope.
Not only this but, it also has the highest R squared value of 0.412
In second place for the slope comes BMO. I'm literally getting anxiety just by looking at this chart
so I'm not even going to consider it because it's WEAK
Let's look at another bank stock instead, which has the second highest R squared value.
and this is National Bank. In comparison to the other 5 banks, $NA has the slowest free cash flow growth (lowest slope)
But there is consistency, and for me, consistency is key
I'm going to be giving RBC and National Bank 1 point each, I'm sorry BMO :'(
The final results we have RBC with 5 Points, National Bank with 4,  None of the banks with 3 points
CIBC and TD with 2 points
and the rest of the banks with 1 point each. I really want to hear but what you guys think about
this analysis and what do you guys think of
RBC as an investment I would love to hear
back from you guys, so please leave me a comment in the Comment section down below.
but for now, this is me, Tamer Azizz, signing out. PEACE!
