BoC rate hike: Here's what should you know about TSX's big bank stocks

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BoC rate hike: Here's what should you know about TSX's big bank stocks

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What you should know about Big 5 bank stocks after BoC rate hike?
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Highlights

  • Soon after the Bank of Canada raised its benchmark rates to one per cent, the big five banks also announced to lift their prime lending rate to 3.2 per cent. 
  • Changes in prime rates are effective from Thursday, April 14.
  • Royal Bank of Canada was the first to change its prime rate to 3.2 per cent.

The Bank of Canada raised its benchmark rates by 50 basis points to one per cent on Wednesday, April 13. As a result, the big five banks led by Royal Bank of Canada (TSX: RY) also lifted their prime lending rate to 3.2 per cent.

Notably, the changes in prime rates are effective from Thursday, April 14.

While increasing the interest rates, the central bank said it aims to fight inflation. In addition, the Bank of Canada indicated that there is a possibility of further rate hikes until inflation cools down to a target of two per cent. 

Any further rise in policy interest rates in the future could be followed by high prime rates from the big five lenders. That said, let us glance at the top five lenders in Canada.

1.    Royal Bank of Canada (TSX: RY)

Royal Bank of Canada was the first to change its prime rate to 3.2 per cent. It currently pays a quarterly dividend of C$ 1.20 per share. RBC scrip zoomed by over 16 per cent in the past year.

Meanwhile, the Royal Bank launched a China-centric equity fund on April 11. The fund aims to provide China-based investment opportunities to investors in the United States.

Also read: Which TSX stocks to buy amid rising fears of omicron XE variant?

2.    Toronto-Dominion Bank (TSX: TD)

Toronto-Dominion Bank has a market capitalization of over C$ 170 billion and holds a return on equity (ROE) of nearly 16 per cent. It doles out a quarterly dividend of C$ 0.89 per share when writing this.

TD stock swelled by almost 13 per cent in the last 12 months.

3.    Bank of Nova Scotia (TSX: BNS)

Bank of Nova Scotia, alternatively known as Scotiabank, saw its Canadian Banking segment record adjusted earnings of C$ 1.2 billion in Q1 FY2022, a year-over-year (YoY) rise of 32 per cent. Its international banking segment also saw its adjusted earnings surge by 38 per cent YoY to C$ 552 million in the latest quarter.

Scotiabank's Global Wealth Management and Global Banking and Markets posted adjusted earnings of C$ 419 million and C$ 561 million in Q1 2022.

BNS stock gained by nearly 10 per cent over the last year.

Dividend payout of the Big 5 bank

4.    Bank of Montreal (TSX: BMO)

Bank of Montreal will pay a quarterly dividend of C$ 1.33 apiece on May 26. As of now, it holds a price-to-cash flow (P/CF) ratio of 135.50.

BMO stock surged by approximately 25 per cent in 12 months.

5.    Canadian Imperial Bank of Commerce (TSX: CM)

Canadian Imperial Bank posted a net profit of C$ 1.86 million and diluted earnings per share (EPS) of C$ 4.03 in Q1 2022. CIBC held a Common Equity Tier 1 (CET1) ratio of 12.2 per cent, according to its latest quarter reports.

CM scrip expanded by around 17 per cent in the past year.

Bottom line

Interest rates could help minimize excessive demand and bring down inflation in the economy. However, investors should consider all macro-economic and micro-economic aspects that can impact any stock's performance while planning investments.

Also read: NUMI and FTRP: 2 TSX psychedelic stocks to buy amid new developments

Please note, the above content constitutes a very preliminary observation based on the industry, and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.

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