As 2024 draws to a close, easing inflationary pressure has brought some welcome relief to the Canadian stock market. Both the U.S. Federal Reserve and the Bank of Canada started slashing interest rates this year, creating a favourable environment for borrowers and businesses. For the banking sector, this monetary policy shift has opened the door to new growth opportunities, as lower rates encourage loan demand while the economy gradually stabilizes.
That's why, to benefit from this trend, it could be the right time to invest in Canadian banks, which are known for their strong fundamentals. In this article, I'll highlight two top bank stocks in Canada to consider before the year comes to an end.
Royal Bank stock
After trading on a mixed note in the previous year, the largest Canadian bank, Royal Bank of Canada (TSX:RY), has surged by a solid 33% so far in 2024 to trade at $178.47 per share with a market cap of $252.7 billion. At this price, RY stock also offers a 3.3% annualized dividend yield.
Royal Bank's stellar financial performance in its fiscal year 2024 (ended in October) clearly suggests why its stock has outperformed the broader market of late. During the fiscal year, its net profit jumped by 11% YoY (year over year) to $16.2 billion. Similarly, its adjusted earnings for fiscal 2024 rose 8% from a year ago to $12.09 per share, exceeding Street analyst expectations.
A large portion of this growth could be attributed to Royal Bank's recent acquisition of HSBC Canada, which helped it expand its revenue streams across core business segments like personal and commercial banking. The bank's wealth management segment registered an outstanding 27% YoY earnings growth in the latest fiscal year due mainly to strong market conditions and net client inflows.
Although higher provisions for credit losses are still affecting its personal and commercial banking segment, an improved economic environment amid declining interest rates could help mitigate these pressures in the coming quarters. These strong fundamentals could help Royal Bank of Canada stock continue outperforming the broader market in the coming years.
Canadian Imperial Bank stock
With a market cap of $89.1 billion, Canadian Imperial Bank of Commerce (TSX:CM) is currently the fourth-largest bank in the country. But its stock has outperformed all Big Five banks so far in 2024. CM stock has added nearly 48% to its value year to date, trading at $94.26 per share, and currently offers an attractive annualized dividend yield of 4.1%.
In its fiscal 2024, Canadian Imperial Bank's adjusted net profit jumped by 12% YoY to $7.3 billion with the help of strong operating leverage and client growth. Notably, the bank added more than 613,000 new clients in the 12 months ended in October 2024. To improve efficiency and make its banking services easier to use for customers, the bank recently launched a custom-built artificial intelligence (AI) platform and a pilot generative AI initiative for frontline employees.
Besides its focus on efficiency and innovative tech, Canadian Imperial Bank's robust capital position, risk management, and continued focus on strategic acquisition opportunities brighten its long-term growth outlook, which should help its share prices inch up further.
