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Highlights
- One of the insurance companies listed here benefitted from a lower effective tax rate in its latest quarter.
- One of the banks mentioned is set to launch its enhanced digital banking platform designed for its small business clients.
- Among them, the highest ROE was 21.28 per cent, and ROA was 19.11 per cent
The banking and insurance sector had some uncertainty as different political parties had different key strategies to boost the banking and insurance sector before the elections. However, as the Liberals won a minority government and with Mr. Justin Trudeau set to resume in the prime ministerial office for a third consecutive term, the priorities and strategies to revamp the banking and finance sector are somewhat transparent.
As per their election manifesto, the Liberals stated that the corporate income tax would be increased to 18 per cent for banks and insurance companies posting earnings above C$ 1 billion. The liberals also intended to introduce a minimum tax system, thereby ensuring a minimum of 15 per cent tax.
The S&P/TSX Capped Financial index posted a Year-to-Date (YTD) return of 20.83 per cent and posted a growth of 0.31 per cent on September 21.
On that note, let us look at how some of the Canadian banking and insurance stocks are poised.
- Manulife Financial Corporation (TSX: MFC)
The insurance company caters to institutional and individual clients by providing wealth management services and life insurance products.
Manulife Financial paid its shareholders a quarterly dividend of C$ 0.28 per share on September 20. The dividend grew at a three-year average of 8.39 per cent.
The insurance company posted annualized premium equivalent (APE) sales of C$ 1.4 billion in the second quarter of the fiscal year 2021, which was an increase of 30 per cent Year-over-Year (YoY). Its net income was C$ 2.6 billion in Q2 FY21. The company collaborated with Rewardz, a reward solution company, to mark its presence in Asia during the quarter.
The valuation metrics show that the insurance corporation held a price-to-earning (P/E) ratio of 6.5, the return on equity (ROE) was 14.82 per cent. The company also had a market cap of C$ 45.97 billion on September 22.
The one-year stock return of Manulife Financial was close to 28 per cent, and its stock price was C$ 23.67 apiece at market close on September 21.
- Canadian Western Bank (TSX: CWB)
The diversified Canadian bank provides a wide range of banking services to medium and small enterprises, and its customer base includes both retail and institutional clients. On September 23, Canadian Western Bank is set to roll out a quarterly dividend of C$ 0.29 per share. The dividend yield was 3.24 per cent on September 22.
Canadian Western Bank posted total revenue of C$ 263.2 million in Q3 FY21. Their loans were C$ 32.3 billion, an increase of 9 per cent YoY in the same quarter.
The bank's senior leadership commented that the bank is set to launch its enhanced digital banking platform designed for its small business clients.
The bank held a market cap of C$ 3.11 billion and earnings per share (EPS) of 3.46 on September 22. The bank also posted an ROE of 10.38 per cent and a P/E ratio of 10.4 on this day.
The bank's stock price traded five below its 52-week high price of C$ 37.75 to close at C$ 35.74 on September 21. Over the past year, the stock price increased by 34 per cent.
Also Read: 5 Canadian bank stocks to buy amid dividend expectations
- Sun Life Financial Inc. (TSX: SLF)
As a part of its community service, the life insurance company announced a donation of C$ 400,000 to Spirit North as per its latest report. This fund is intended to support the health program for youth and children.
Sun Life Financial reported a net income of C$ 900 million in Q2 FY21, driven by business growth and a lower effective tax rate. Also, a favorable credit environment during the quarter was cited as a factor.
On September 29, the life insurance company is scheduled to roll out a quarterly dividend of C$ 0.55, and the dividend yield stood at 3.48 per cent on September 22.
The EPS and ROE of Sun Life Financial were 5.69 per cent and 14.99 per cent, respectively. Meanwhile, its price-to-book (P/B) ratio was 1.64 on September 22.
Over the past year, the stock price of the insurance company increased by 17 per cent and closed at C$ 63.08 on September 21.
Also Read: Is Manulife (TSX:MFC) stock a good buy for your portfolio reshuffle?
- Royal Bank of Canada (TSX: RY)
Although Royal Bank of Canada is based in Canada, it conducts banking operations in the US and other countries. The bank provides full-fledged banking services to its customers. The bank will likely roll out a quarterly dividend of C$ 1.08 on November 24. The five-year dividend growth rate was 6.3 per cent, while the dividend yield was 3.44 per cent on September 22.
Royal Bank of Canada posted a reported net income of C$ 4.3 billion in Q3 FY21, an increase of 34 per cent YoY. Driven by better macroeconomic scenarios and improved credit quality, the provision on performing loans in the same quarter was C$ 638 million.
The bank held an ROE of 18.67 per cent, EPS of 10.62, and the debt-to-equity (D/E) ratio was 0.1 on September 22.
The stock price of Royal Bank of Canada reached its 52-week high of C$ 134.23 on August 25, and at market close on September 21, the stock price touched C$ 125.33. On a YTD basis, the stock price climbed up by close to 20 per cent and by 33 per cent over the past year.
- Hut 8 Mining Corp. (TSX: HUT)
The digital asset mining company executes the mining of bitcoins and crypto. Hut 8 Mining, along with the mining of bitcoins, has a diversified business model.
The financial firm held an ROE of 21.28 per cent, ROA of 19.11 per cent, and a P/B ratio of 5.05. The market cap of Hut 8 Mining was C$ 1.61-billion (at the time of writing).
The stock price of Hut 8 Mining ballooned by 83 per cent on a quarter-to-date (QTD) and skyrocketed by 982 per cent over the past year. On September 21, the stock price closed at C$ 9.85.
Bottom line:
It is believed that the implementation of the tax plan drafted by the Liberals will likely affect the banking and insurance sector in subsequent quarters, however, it could go either way.
