Business & Investment

Bank Stock Rally: What Should You Do With Your Big Bank Stock?

The 2020 pandemic gave an example of what could happen to “stable” dividend stocks such as Mega Bank stocks. Indeed, if there is economic uncertainty, Canada’s major bank stocks, which are generally considered good companies, will also fall sharply.

Here’s how Canada’s Big Six Bank went during the pandemic market crash last year. From mountains to valleys Royal Bank of Canada (TSX: RY)(NYSE: RY) Inventory decreased by about 33% Toronto-Dominion Bank Inventory decreased by 34% Nova Scotiabank Inventory decreased by 37% BMO Inventory decreased by 42% CIBC 35% decrease, National Bank of Canada (TSX: NA) It decreased by 47%.

In 2020, banks increased their allowance for doubtful accounts, securing more money for higher levels of bad debt than expected. Logically, they set aside more than they need to.

After all, the results weren’t too bad. Last year, National Bank and RBC earnings were the most resilient, with adjusted earnings per share down about 5% and 12%, respectively.

Are you sitting in the great profits of your Canadian bank stocks?

If you were lucky enough and brave enough to buy one of Canada’s big bank stocks during the pandemic market crash, you’re probably sitting in great profit.

Let’s say you picked it up RBC Shares at an average price of about $ 90 per share. By now, you will be sitting in that position with a price increase of about 30%.

If you buy a stake in National Bank for about $ 55, your unrealized profit will be about 55%.

Are you thinking of selling your Canadian bank stock?

Some investors may want to book these oversized profits. After all, long-term average equity market returns are only about 7%.

However, you may choose to hold bank shares for multiple reasons.Big six Canadian bank Showed their strength and ability to recover in a recession.

About 10 years before the pandemic, their financial results were defensive against the global financial crisis. That is, their stocks fell significantly by up to 50% during the crisis, but their performance wasn’t half as bad. During that period, it even increased adjusted earnings per share.

In other words, when bank stocks fell sharply, it was time to load their stocks. Not only will prices rise when the macro environment normalizes, but investors will also enjoy safe dividend income.

Bank shareholders ensure high stock yields by buying at low prices. This is a passive income stream that you can enjoy for a very long time.

If you buy RBC and National Bank for $ 90 and $ 55, respectively, during a pandemic crash, the effective dividend yields for these bank stocks will be approximately 4.8% and 5.1%, respectively.

Investor takeaway

Canada’s big bank stocks haven’t just recovered from last year’s market crash. Congratulations if you bought (more) shares during the crash.

It’s a good idea to own a bank as part of a diverse portfolio. They provide great passive income and are resilient to recession. When the market crashes, it may be a great opportunity to buy more stock to hold for lasting passive income.

As always, check your stock / sector quotas. If your bank has 50% of your equity portfolio, you should strongly consider diversifying elsewhere.

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This article represents the opinion of a writer who may disagree with the “official” recommendation position of the Motley Fool Premium Services or Advisors. We are Motley! Asking investment treatises, even our own, can help you think critically about your investment and make decisions to be smarter, happier, and richer. As a result, we may publish articles that may not match recommendations, rankings, or other content.

Stupid contributor Cain It owns shares in Royal Bank of Canada, Nova Scotiabank and Toronto-Dominion Bank. Motley Fool recommends BANK OF NOVASCOTIA.

Bank Stock Rally: What Should You Do With Your Big Bank Stock? Bank Stock Rally: What Should You Do With Your Big Bank Stock?

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