Canada Stocks — Valuations, P/E & Dividends

Royal Bank of Canada reported third-quarter 2026 results. Net profit came in at CAD 6,022 million, up 11.2% year on year, while net interest income rose 9.1% year on year to 18,511 million. Yet return on equity remains low at 5.6%, and the stock trades at 19.1 times earnings, making it unattractive at current levels.

Key takeaways

— Net profit rose 11.2% year on year to CAD 6,022 million, but that is only 11% above the quarterly profit level a year ago

— Net interest income added 9.1% year on year to 18,511 million, becoming the main driver of profit growth

— Return on equity at 5.6% remains low and does not even cover the risk-free rate, limiting investment appeal

— Dividend yield of 2.35% lags the yield on ten-year Canadian government bonds, making the stock less attractive for conservative investors

— A valuation of 19.1 times earnings looks stretched against a 5.6% ROE and no acceleration in profit growth

— The portal model estimates upside to fair value at +6%, which does not compensate for the risks associated with low profitability

Attractiveness

Key figures, CAD bn

Net profit rose 11.2% year on year to CAD 6,022 million, but that is only 11% above the quarterly profit level a year ago

In the third quarter of 2026, Royal Bank of Canada earned CAD 6,022 million in net profit. That is 11.2% more than in the same quarter last year, when profit was 5,415 million. The growth looks solid, but compared with the previous quarter (5,507 million), profit increased by only 9.3%, indicating no acceleration.

The main source of growth was net interest income, which rose 9.1% year on year to 18,511 million. This is the highest quarterly figure in the last four quarters: in the previous three it ranged from 16,960 to 17,923 million. Thus, profit growth relies on an increase in interest income, not on one-off factors.

Net interest income added 9.1% year on year to 18,511 million, becoming the main driver of profit growth

Net interest income in the third quarter of 2026 reached CAD 18,511 million, up 9.1% from 16,960 million a year earlier. This is the highest quarterly level in at least four quarters: in Q4 2025 it was 17,196 million, in Q1 2026 – 17,923 million, in Q2 – 17,429 million.

The growth in interest income provided the bulk of the profit increase. However, the growth rate of this indicator slowed compared with the first quarter of 2026, when it rose 5.7% quarter on quarter. In the reporting quarter, the quarter-on-quarter increase was 6.2%, slightly higher, but the year-on-year dynamics are more modest than over the trailing twelve months, where net interest income totalled 66,500 million.

Return on equity at 5.6% remains low and does not even cover the risk-free rate, limiting investment appeal

Royal Bank of Canada's return on equity is 5.6%. This is a very low figure for a bank: it is not only significantly below the historical levels of Canadian banks but also does not cover the yield on ten-year Canadian government bonds, which in recent years has fluctuated between 3–4%. At such a profitability level, the bank does not create sufficient value for shareholders.

The low ROE is explained by the fact that the profit of CAD 6,022 million was earned on a substantial equity base. With a market capitalisation of 388,165 million and a P/E of 19.1, earnings per share are low relative to the price. This means investors are paying a significant premium for growth that is not yet supported by the level of profitability.

Dividend yield of 2.35% lags the yield on ten-year Canadian government bonds, making the stock less attractive for conservative investors

Royal Bank of Canada's dividend yield over the trailing twelve months is 2.35%. This is below the yield on ten-year Canadian government bonds, which in recent years has often exceeded 3%. Thus, an investor buying the stock for dividends receives a lower current income than from investing in risk-free government securities.

With a payout ratio that can be estimated as the ratio of dividend per share to earnings per share, and current profit of CAD 6,022 million, the dividend burden looks moderate. However, the low ROE of 5.6% means the bank cannot rapidly increase profits, and therefore dividend payments will grow slowly. This limits the stock's appeal for income-oriented investors.

A valuation of 19.1 times earnings looks stretched against a 5.6% ROE and no acceleration in profit growth

Royal Bank of Canada's P/E ratio on trailing twelve-month earnings is 19.1. This is a high level for a bank with a return on equity of 5.6%. For comparison, Canadian banks have historically traded at P/E ratios of 10–15, and the current valuation implies either significant future profit growth or a sustainable quality premium that is not supported by current metrics.

The bank's market capitalisation is CAD 388,165 million. With trailing twelve-month profit of 20,362 million, this gives the stated P/E. However, if profit remains at the current level or grows at the same pace, the valuation is unlikely to decline to historical levels without a fall in the share price. This creates a risk for investors buying the stock at current levels.

The portal model estimates upside to fair value at +6%, which does not compensate for the risks associated with low profitability

According to the portal model, the fair value of Royal Bank of Canada shares implies upside of +6% to the current price. This calculation is based on comparing return on equity and the P/B ratio. Such upside is not significant and does not compensate for the risks associated with a low ROE of 5.6% and a high valuation of 19.1 times earnings.

For comparison, with a current dividend yield of 2.35%, the total return (price growth plus dividends) could be around 8.35%, which only slightly exceeds the yield on risk-free bonds. Given the uncertainty in financial markets and the absence of clear drivers for accelerating profit growth, such a return appears insufficient to justify taking on investment risk.

Valuation on the latest reported figures

Bottom line

Royal Bank of Canada delivered solid profit growth of 11.2% year on year and a 9.1% increase in net interest income, which is a strong point of the report. However, return on equity remains low at 5.6%, and a valuation of 19.1 times earnings with a dividend yield of 2.35% does not make the stock attractive. The portal model indicates upside of only +6%, which does not compensate for the risks. Ultimately, at current levels, the stock looks unattractive for purchase.

Bank of Nova Scotia reported third-quarter 2026 results. Net profit came in at CAD 2,908 million, up 18.8% year on year, while net interest income rose 10.5% to 10,313 million. Return on equity remains low at 4.4%, and the stock trades at a trailing twelve-month price-to-earnings ratio of 20.5. With a dividend yield of 3.4% and the portal model implying 7% upside, the share looks rather attractive for income-oriented investors, though not for multiple expansion.

Key takeaways

— Net profit rose 18.8% year on year to CAD 2,908 million, but the growth rests on a low base from a year earlier

— Net interest income added 10.5% year on year to 10,313 million, and it remains the bank's main revenue driver

— Return on equity at 4.4% is low and leaves little cushion above the dividend payout

— The 3.4% dividend yield, with a payout ratio close to 100% of earnings, offers limited room for manoeuvre

— The portal model implies 7% upside to the current price, only slightly above the dividend yield

Attractiveness

Key figures, CAD bn

Net profit rose 18.8% year on year to CAD 2,908 million, but the growth rests on a low base from a year earlier

In the third quarter of 2026, Bank of Nova Scotia earned CAD 2,908 million in net profit, up 18.8% from the same quarter a year earlier. For comparison, profit a year ago was 2,447 million. The growth looks impressive, but it starts from a weak third-quarter 2025 result, when the bank faced elevated credit loss provisions.

The quarterly sequence shows profit rising for several quarters: from 2,219 million in Q4 2025 to 2,287 million in Q1 2026, then 2,595 million in Q2 and 2,908 million in Q3. This is a steady recovery, not a one-off jump. Even at the current level, however, profit remains below the average of recent years, indicating the recovery is not yet complete.

Net interest income added 10.5% year on year to 10,313 million, and it remains the bank's main revenue driver

Net interest income in Q3 2026 was CAD 10,313 million, up 10.5% from 9,329 million a year earlier. This is the bank's core revenue line, and its trend matters more than one-off items in profit. Growth in net interest income means the bank is either expanding lending volumes or improving the spread between funding costs and asset yields.

On a quarterly basis, net interest income has risen steadily: 9,579 million in Q4 2025, 9,880 million in Q1 2026, 9,615 million in Q2, and 10,313 million in Q3. A slight dip in Q2 gave way to a new high, showing the bank can grow revenue even in a shifting rate environment. Over the trailing twelve months, net interest income reached 37,100 million, confirming the scale of this business.

Return on equity at 4.4% is low and leaves little cushion above the dividend payout

Bank of Nova Scotia's return on equity over the trailing twelve months is 4.4%. For a bank, this is low: it means the bank earns less than five cents for every dollar of equity. At this level of profitability, the ability to build capital organically is limited, and the bank must rely on external funding or asset reduction to maintain capital adequacy.

The low ROE reflects profit still recovering from a period of elevated provisions. If profit continues to grow at the same pace, ROE could improve, but for now it remains below the cost of equity that the market typically demands from banks. This is a key argument against aggressive re-rating of the stock.

The 3.4% dividend yield, with a payout ratio close to 100% of earnings, offers limited room for manoeuvre

Bank of Nova Scotia's trailing twelve-month dividend yield is 3.4%. This is a moderate level for a Canadian bank, but it is attractive relative to current rates. However, with a return on equity of 4.4% and a price-to-earnings ratio of 20.5, the payout ratio is close to 100% of earnings: the bank distributes almost everything it earns. This means dividend growth is possible only with a substantial increase in profit.

For an income-oriented investor, it is important that the dividend is covered by earnings, but it does not create a cushion. If profit declines, the bank may face the need to either cut payments or raise capital. For now, the dividend remains one of the main arguments in favour of the stock, but its sustainability depends on continued profit recovery.

The portal model implies 7% upside to the current price, only slightly above the dividend yield

According to the portal model, which compares return on equity with the price-to-book ratio, the fair value of Bank of Nova Scotia shares is 7% above the current market price. This is moderate upside, only slightly above the 3.4% dividend yield. In other words, an investor could expect a total return of around 10% per year if the valuation holds and the dividend is maintained.

The trailing twelve-month price-to-earnings ratio is 20.5. For a bank with a return on equity of 4.4%, this is a fairly high multiple: the market is already pricing in profit recovery. If profit does not grow as expected, the multiple could compress, and the upside implied by the model would prove unattainable. For now, the valuation looks balanced, without clear over- or undervaluation.

Valuation on the latest reported figures

Bottom line

Bank of Nova Scotia delivered a strong quarter: profit rose 18.8% and net interest income grew 10.5%, indicating a recovery in the core business. However, return on equity remains low at 4.4%, and the dividend absorbs almost all earnings, leaving no cushion. The portal model implies 7% upside, slightly above the 3.4% dividend yield, but the 20.5 P/E already prices in a lot of good news. For an income-oriented investor, the stock looks rather attractive, but for a bet on multiple expansion, it is neutral.