Recent write-up on Motley FoolNelson Smith | December 2, 2018
Laurentian Bank
Canada’s Big Five banks get all the attention — perhaps rightfully so — but investors who look past these behemoths can find some interesting bargains.
Laurentian Bank of Canada (TSX:LB) is one such value stock. Shares currently trade hands at $41.70 each, even though the company earned $5.40 per share over the last 12 months. That gives the company a P/E ratio of just 7.7, which is one of the lowest in Canada. Laurentian also trades at less than book value, another important value metric when looking at bank shares.
This company does have some issues, but they’re not the end of the world. It was forced to buy back certain mortgages after an investigation revealed some of the borrowers may have falsified some data. It is trying to cut back branches, a move resisted by its unionized workforce. And management has made the choice to prioritize balance sheet management over growth for the next few quarters, which will likely impede earnings growth.
But investors are getting a heck of a prize to wait — a 6.1% dividend that’s well covered by earnings. The payout has almost doubled in the last 10 years and the payout ratio is a little less than 50% of earnings. This means dividend growth is likely to continue, even if earnings don’t accelerate at the same pace.