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5 Sleepy Canadian Banks Providing Super Dividend Yields

You don't have to mess with American mega-banks anymore

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Many investors are turned off to the idea of U.S. financials. There’s a laundry list of recent scandals at big banks, including money laundering at HSBC Holdings (NYSE:HBC), Britain’s largest bank, the “London Whale” at JPMorgan Chase (NYSE:JPM) and Barclays PLC (NYSE:BCS) manipulating a key interest rate known as LIBOR.

There’s talk of more layoffs in the financial industry, with Bank of America (NYSE:BAC) and Citigroup (NYSE:C) in the crosshairs, among others.

Then, of course, there are the share prices. After surging to start the year, the vast majority of banks are down double-digits since mid-March, with the benchmark Select Sector Financial SPDR (NYSE:XLF) down about 5%.

Clearly the big banks are suspect … but our neighbors to the north aren’t doing too badly. If you’re looking to play the financial sector with a little less risk, then perhaps sleepy Canadian banks with big dividends are worth a look. Five of the largest and most well-heeled Canadian financial stocks trading in the U.S. on the NYSE are:

  • Royal Bank of Canada (NYSE:RY): $74 billion market cap, 4.3% yield
  • Toronto-Dominion Bank (NYSE:TD): $72 billion market cap, 3.6% yield
  • The Bank of Nova Scotia (NYSE:BNS): $60 billion market cap, 4.1% yield
  • Bank of Montreal (NYSE:BMO): $37 billion market cap, 4.9% yield
  • Canadian Imperial Bank of Commerce (NYSE:CM): $30 billion market cap, 4.8% yield

These banks are not without risk. Recently S&P cut its outlook for a number of banks, including Canadian institutions. And as writer and Canadian resident Will Ashworth wrote recently, consumer debt and a shaky housing market raise serious concerns north of the border. Investors know first-hand how painful a downturn in residential mortgages can be for financial stocks.

But there are a few good reasons to look to Canadian banks, too. While most are just tracking the market right now, they might be a good place to look for dividends or for a secular recovery in 2013.

They Are Akin to U.S. Regional Banks

Consider that some of these five Canadian megabanks are significantly smaller than some U.S. regional banks.

U.S. Bancorp (NYSE:USB) has a $60 billion market cap, for instance — double Canadian Imperial. And PNC Financial Services (NYSE:PNC) is worth $32 billion with about $270 billion in assets and about 2,900 branches. Canadian Imperial has just 1,070 branches across Canada.

This smaller size actually is a plus for many investors. After all, the problem of JPMorgan’s crazy traders in London doesn’t exist at a bank that focuses mainly on commercial and residential banking. Also, smaller size means there still is room to grow, either by buyouts or expansion.

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The strength of regional banks vs. the big “Too Big To Fail” financial monstrosities is clear to investors. Just consider the performance of the SPDR KBW Regional Banking ETF (NYSE:KRE) — which boasts top holdings in Regions Financial (NYSE:RF), KeyCorp (NYSE:KEY) and Texas Capital Bancshares (NASDAQ:TCBI) — vs. the big-bank-focused XLF fund. The regional KRE fund is up 15% in the last 24 months vs. a flat XLF, and up 23% in the past 12 months vs. 14% for the big-bank ETF.

If you like regional banks, you should consider Canadian financials, too. Here’s why:

Article printed from InvestorPlace Media,

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