The Best Canadian Bank Stocks to Buy for Your TFSA

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Stocks of major Canadian banks serve as core holdings for diversified stock portfolios. Blue chip stocks have fallen recently on the back of several US regional bank failures. Special, BMO Equal Weight Banks Index ETFRoughly equal parts Canadian bank stocks from the Big Six are down about 11% from their February peak.

Some Canadian bank stocks have corrected more than others. Regardless, it’s an opportunity for long-term investors to consider buying stocks to sell in their Tax-Exempt Savings Account (TFSA) for tax-free returns. Today, let’s explore the top Canadian bank stocks to buy for your TFSA.

RY diagram

Big Six Canadian bank stock data by YCharts

Top Canadian Banking Stocks For Income

Interestingly, since peaking in February, Canadian Imperial Bank of Commerce is down only about 7.5% and ranks second in terms of resilience to the recent tumble. It also offers the second-highest dividend yield in the group. At around $57 per share at the time of writing, that translates to a nearly 6% yield.

Bank of Nova Scotia The stock’s about 10.6% drop from its February peak is roughly in the middle of the pack. At $65.81 per share at the time of writing, the stock offers the highest dividend yield of nearly 6.3%.

They offer the largest amount of passive income for investors who prioritize ongoing income. It would take time for the income of the others to catch up with their high yields. In addition, interest rates could rise too quickly to trigger a recession. During a recession, the regulator, the Office of the Superintendent of Financial Institutions, is likely to prevent banks from increasing their dividends.

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Well, at least the Bank of Canada left interest rates unchanged at 4.50% this month, in contrast to the Federal Reserve, which recently went ahead with a 0.25% rate hike, leaving the Federal Reserve rate at 4.50% through 4 .75% fixed. Because of this, the US dollar also gained strength against the Canadian dollar.

The Safest Canadian Banking Stocks

In today’s environment, as price action has suggested, the Canadian bank stock is the safest National Bank of Canada, because it has the lowest exposure in the United States. Nearly 80% of the Bank’s revenues are generated in Canada.

Royal Bank of Canada (TSX:RY) stock was also resilient, likely due to the diversity of its business. It has five businesses: retail and corporate banking (40% of FY2022 revenues), wealth management (30%), capital markets (18%), insurance (7%), and investor and treasury services (4%). It generates about 59% of its sales in Canada, 25% in the US, and 16% internationally.

The top Canadian bank stock for the highest total return

Toronto Dominion Bank (TSX:TD) shares were hit the hardest – down 16% from February’s high. One reason is that it owns 10% Karl Schwab, which has lost about 29% of its value over the past three weeks. Consequently, once this banking crisis is over, TD stock should make the strongest comeback and generate the highest returns over the next five years.

Assuming a conservative earnings per share growth rate of 7% and a return to the median valuation — a price-to-earnings ratio of about 11.7 — TD stock can produce an annualized return of about 15% over the next five years .

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Investors can choose the Canadian bank stocks to invest in for their TFSAs based on whether they are seeking ongoing income, resilience in share prices (ie, capital safety), or the highest total return potential. If you can’t decide, you can buy them all through the ZEB ETF for long-term investing.

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