What are we looking for?
The best way to buy Canadian bank stocks.
More about today's screen
For the better part of two decades, the best way to outperform the market has been to buy the Big Five Canadian bank stocks. But what is the best way to buy them other than simply buying all of them?
Some believe the best way is to buy the one that is underperforming the rest, which assumes that each of the Big Five goes through a period when it underperforms but then fixes problems and reverts to the mean.
CPMS crunched the numbers back to 1986 using seven different strategies. Note that all performance numbers include the re-investing of dividends each year. Stocks are also reselected annually as of Oct. 31.
What is CPMS?
Each week we do a screen with CPMS, which is a Toronto-based equity research and portfolio analysis firm owned by Morningstar Canada. CPMS maintains a database of about 660 of the largest and more liquid Canadian stocks, plus another 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
Of all the strategies, buying the stock with the highest dividend yield has performed the best over the long term, while lowest price-to-book value is the best over the past 10 years. By far, the worst performance for all periods came from buying the bank with the best 12-month performance.
Jamie Hynes, a senior consultant with CPMS, notes that the highest dividend strategy makes sense because the best performing banks over the long term have been the ones that have been able to raise dividends the most. Tomorrow, we'll look at the latest numbers for each of the banks and their long-term dividend performance.
Stock's in today's column include Canadian Imperial Bank , Bank of Montreal , Bank of Nova Scotia , Toronto-Dominion Bank and Royal Bank of Canada .