Warren Buffett: Where Canadians Should Be Investin...
There’s likely not anyone else you’d rather have than Warren Buffett at the helm during a market crash. The Oracle of Omaha has a renowned reputation for being incredibly opportunistic when many others are in a state of panic.
Buffett is definitely not afraid to make bold decisions and go against the grain of other investors. That goes for both buying and selling positions.
Earlier this year, Berkshire Hathaway sold off entire positions in four major U.S. airlines. The positions had a net worth of $4 billion and were sold at a considerable loss.
Buffett believed that the airline industry would have lasting effects from this pandemic for many years. He went on to say that “We will not fund a company … where we think that it is going to chew up money in the future.”
Warren Buffett loves bank stocks
The recent market crash was not as steep or as drawn out as the Great Recession. During that market crash, the Canadian market lost more than half its value, and the crash lasted for over a year and a half. In comparison to the crash this year, which was nearly a 40% drop in just over a month.
Berkshire Hathaway had a solid balance sheet during the great recession. It allowed the company to go on a shopping spree when many others were trying to conserve capital.
Warren Buffett and co. initiated and added to positions in U.S. bank stocks, most notably in Goldman Sachs and Bank of America. An investment of $5 billion was made into Bank of America at a share price of just over $7. Fast forward 10 years, and the bank is now trading at close to $30 a share. Not to mention, the bank owns a dividend yield of 2.5% at today’s stock price.
Buffett understood the importance of the major U.S. banks to the American economy. He saw an opportunity to gobble up a massive amount of undervalued shares of a great company that was in temporary trouble.
Investing in Canadian banks
The major Canadian banks may not be the fasting-growing group of stocks, but their importance to the Canadian economy, similarly to the U.S. banks, is second to none.
Canadian banks offer investors an incredible track record of stability, mixed with a respectable level of growth. You can’t forget the impressive dividends, too.
Each of the Big Five banks owns dividend yields above 4% today, two of which are above 5%.
Warren Buffett Stock #1: Bank of Montreal
Valued at a market cap of $60 billion, Bank of Montreal (TSX:BMO)(NYSE:BMO) is Canada’s fourth-largest bank.
BMO, along with the other major Canadian banks, saw its share price get slashed when the pandemic first hit North America. Lowered interest rates had a direct impact on each of the bank’s bottom lines.
From early February to the end of March, BMO lost almost 50% of its value. Since that last week of March, though, it’s regained most of that loss. Today, the bank is trading about 5% below where it began the year.
You can’t mention BMO and not talk about its unbelievable dividend. The Montreal-headquartered bank has been paying a dividend to its shareholders for almost two centuries, dating back to 1829. Not only that, the bank has raised its dividend at a compound annual growth rate of 6% over the past 10 years.
Warren Buffett Stock #2: Bank of Nova Scotia
Canada’s third-largest bank, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), is valued at a market cap of $80 billion.
It’s no surprise to hear that Bank of Nova Scotia offers a top dividend yield.
At today’s stock price, the annual dividend of $3.60 per share is equal to a yield of 5.3%. That the highest yield among the Big Five banks.
Where Bank of Nova Scotia differs from its peers is in its geographic presence. Most of the major Canadian banks have operations spread across North America, with some also expanding outside the continent, too.
Bank of Nova Scotia took a different approach to its geographic expansion, investing aggressively in Latin America. Thus far, the investment seems to have paid dividends. The bank is already regarded as a leader in the trade bloc region known as the Pacific Alliance, which consists of Columbia, Chile, Mexico, and Peru.
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