Financial Insights That Matter
Written by Brian Paradza, CFA at The Motley Fool Canada
Tariff wars between the U.S. and its trading partners are rattling markets thus far in 2025. Investors are scrambling for shelter, and Canadian banking stocks – traditionally seen as safe harbours — are in the spotlight. But here’s the catch: Not all banks weather storms the same way. Bank of Montreal (TSX:BMO) and Bank of Nova Scotia (TSX:BNS) (or Scotiabank) are sailing through these choppy waters with very different strategies. Let’s unpack which bank stock (or both!) might deserve a spot in your portfolio.
BMO stock serves up a 4.6% dividend yield – solid, but not eye-popping. The real magic? Its earnings payout ratio sits at a comfy 58%, meaning it’s reinvesting nearly half its earnings back into the business to sustain a high earnings growth rate. BMO stock achieved an 11% annual dividend growth streak over the past three years. The bank stock retains ample room to keep hiking those payouts and fund expansion.
Scotiabank stock, on the other hand, dangles a juicy 6.1% dividend yield. But there’s a catch: Its payout ratio is a sky-high 84%, leaving little wiggle room for dividend hikes or reinvestment. While that fat yield might tempt passive income hunters, BNS stock’s slower 4.6% dividend growth rate (vs BMO) over the past three years hints at a tighter leash.
If you’re after reliable, growing income, BMO stock is your pick. If you need cash now and can stomach less flexibility, BNS stock could be tempting.
BMO is betting big on the U.S., where it gets 33% of its revenue. With American GDP growth outpacing Canada’s (2.7% vs 2% in 2025), that’s a smart play – especially as tariff wars threaten cross-border trade. Recent U.S. acquisitions helped BMO’s revenue pop 21% last quarter. Plus, its 12.3% historical return on equity (ROE) means it’s turning retained earnings into growth like a pro.
Bank of Nova Scotia has been chasing growth in Latin America and the Caribbean (41% of revenue). Sure, the IMF forecasts show the region’s economy warming up, but emerging markets are a rollercoaster – think currency swings, political drama, and sudden rule changes. BNS is trying to simplify by ditching markets like Colombia and Central America while building U.S exposure through a recent KeyCorp deal, but its lower ROE (11.4%) and thin earnings retention suggest slower organic earnings growth.
Organic earnings growth rates are a key driver of future capital gains on a stock.
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