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Canada’s Big Banks have encountered massive headwinds in 2023 but remain rock-solid investments. However, two smaller financial stocks have outperformed the giant lenders and continue to beat the broader market.
Challenger Bank
EQB Inc. (TSX:EQB), a wholly owned subsidiary of Equitable Bank, is the top financial stock. None of the Big Six banks can match the positive returns of this $3 billion lender. At $79.60 per share, EQB’s year-to-date gain of 42.7% compensates for the modest 1.92% dividend yield (14.6% payout ratio).
The financial stock is more enticing following its record annual earnings in fiscal 2023. In the 12 months ending Oct. 31, 2023), net income climbed 37.5% to $371.6 million versus fiscal 2022. “Forward-thinking customers look to Canada’s Challenger Bank for innovation, while EQB shareholders look for consistently superior value creation. Our team delivered both in 2023,” said EQB President and CEO Andrew Moor.
EQB’s customer base grew 30% year over year to over 400,000, helping deposits to reach $8.2 billion. Management said daily account openings accelerated because of the popular Savings Plus Account. Moreover, the adjusted ROE for the fiscal year is 15.8%. Moor said EQB increased customer retention and market share on the lending side.
Record results
Goeasy (TSX:GSY), a non-prime leasing and lending services company, is the next-best choice after EQB. At $143.06 per share, current investors are ahead 38.3% year to date. If you invest today, the dividend offer is a decent 2.74%. The quarterly dividends should be safe, given the 32% payout ratio.
The $2.7 billion lender reported record results in Q3 fiscal 2023. Because of the record volume of applications, stable credit and payment performance, operating income rose 39% year over year to a record $127 million. The net income of $66.3 million is 41% higher than in Q3 fiscal 2022.
“Record growth and reduced credit losses contributed to record earnings,” said Jason Mullins, goeasy’s President and CEO. “With the weighted average credit score of our originations increasing for eight consecutive quarters, and this past quarter having the highest weighted average score in our history, we continue to improve the credit quality of our portfolio.”
Other business highlights were the 13% and 33% increases in loan originations and the loan portfolio to $733 million and $3.4 billion, respectively, compared to the same quarter in fiscal 2022.
Dividend pioneer
EQB and goeasy overshadowed the Big Banks in the most recent quarter, but if you insist on buying a large-cap stock, the Bank of Montreal (TSX:BMO) is the logical choice. Canada’s third-largest bank ($84.4 billion market cap) is TSX’s dividend pioneer. It started paying dividends in 1829, and the track record is 194 years.
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Most of the bank’s revenues (60%) come from the home country, although the contribution from the US markets could rise following the acquisition of Bank of the West. Some market analysts expect consistent double-digit loan growth, higher deposit market share, and commercial lending strength across the border. BMO trades at $117 per share (+0.12% year to date) and pays a lucrative 5.18% dividend.
Excellent buys
BMO is stable as ever despite lower earnings in Q4 fiscal 2023, while the momentum of EQB and goeasy is unstoppable. All three financial stocks are excellent buys on the TSX today.
