Tariff announcements by the Trump administration, including on and off implementations, continue to unsettle stock markets. The S&P/TSX Composite Index remains in negative territory year-to-date (-2.2%) but is doing better than the S&P 500 Index (-10.3%) on Wall Street.
On April 16, 2025, the Bank of Canada paused its rate-cutting cycle and held its policy rate at 2.8%. In a press conference, BOC governor Tiff Macklem said, “The dramatic protectionist shift in U.S. trade policy and the chaotic delivery have increased uncertainty, roiled financial markets, diminished global growth prospects and raised inflation expectations.”
“We still do not know what tariffs will be imposed, whether they’ll be reduced or escalated, or how long all of this will last,” Macklem added. Meanwhile, investors must react but avoid panic selling. If you’re an income-focused investor, stick to an established, time-tested sector like banking.
National Bank of Canada (TSX:NA), the country’s sixth-largest financial institution, is a forever dividend pick. The Big Bank carries a ‘hold’ rating from market analysts. Based on their price targets of $133 (average) and $149 (high) in 12 months, the upside potential is between 15.5% and 29.4%. If you invest today ($115.12 per share), NA pays an attractive and solid 4% dividend.
Also, your investment portfolio needs high-quality, sustainable dividend-paying players in the current market conditions. Given NA’s payout ratio of 40.1%, the quarterly dividends should be sustainable.
Long-term growth prospects
Long-term growth is on the horizon following NA’s acquisition of the Canadian Western Bank. This $44.8 billion bank now has a distinct advantage in Western Canada and Quebec and will leverage CWB’s regional expertise. The commercial bank would also have a more substantial presence in BC and Alberta.
Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management, sees National Bank as a “terrific operator” in mergers and acquisitions. He said in a BNN Bloomberg interview that previous acquisitions have been home runs. CWB has underperformed in recent years, and NA could turn things around.
Integration activities have begun in February 2025. Laurent Ferreira, CEO of NA, said the combined organization will offer customers expanded products and services nationally while maintaining regional expertise.
Diversified earnings power
Credit rating agency Fitch Ratings said the capital levels for Canadian banks remain strong at the close of Q1 fiscal 2025. Besides reinstating share buyback programs, the banks continue looking for opportunities to deploy capital further.
In the three months ending January 31, 2025, net income increased 8% to $997 million compared to Q1 fiscal 2024. However, the provision for credit losses (PCL) rose 111.7% year-over-year to $242 million. Ferreira said, “The Bank generated strong first quarter financial results, reflecting solid execution across business segments and our diversified earnings power.”
The financial markets and wealth management segments saw their quarterly income rise 35% and 22% to $417 million and $242 million, respectively, from a year ago. The CWB deal should accelerate domestic growth and extend the depth of NA’s banking capabilities.
Buy-and-hold
National Bank of Canada is a ‘buy-and-hold’ stock for seasoned investors and beginners. You have a dependable passive income provider with rock-solid dividends and visible growth prospects.