Canadian banks do well in the long term as an investment, but often go through temporary declines. They’re in one now, but should recover.

In a column last year, I recommended buying shares of the Big Five Canadian banks especially if you hated seeing regular increases in bank service charges.

As a part owner of the business, you wont be quite as resentful of the way they treat you as a customer, I wrote about the advantages of investing in bank shares .

By holding these stocks, you will enjoy dividend yields of three to four per cent (higher than the interest rates on their savings products), rising dividend payments as bank profits grow and growth in their share prices.

Its time for a reality check.

As crude oil prices plunge, Canadian banks are losing momentum. Investors seem skittish about banks exposure to the energy sector and dependence on mortgage loans in a high-flying real estate market.

The Big Fives share prices have taken a beating, down four to eight per cent in the year to date.

As a result, their dividend yields calculated by dividing the share price into the dividends per share have grown.

TD Bank has the lowest dividend yield at 3.56 per cent. Royal Bank yields 4.01 per cent, Scotiabank 4.07 per cent, Bank of Montreal 4.21 per cent and CIBC 4.5 per cent.

The banks are still raising their dividends, with a one-year dividend growth rate of five to 12 per cent.

Has the story changed? Not if youre a frugal type, who likes buying when stock prices are depressed.

The Big Five now have lower price-earnings ratios (11.22 for Scotiabank, 11.65 for CIBC, 11.8 for BMO, 12.43 for RBC, 12.69 for TD) than for other Canadian blue chip dividend payers.

In the telecom sector, BCE has a P/E ratio of 19.42, Telus 19.18 and Rogers 16.83. In the utility and pipeline sector, Enbridge has a whopping P/E ratio of 65.02, Inter Pipeline 31.21 and TransCanada 24.45.

Yes, there may be rough times ahead for Canadian banks. But they have a history of getting back on track and resuming their rapid dividend growth, as they did after the 2008-2009 financial crisis.

Bank investors can set up dividend reinvestment plans (DRIP) with brokers or with banks directly. This means they can use their dividends to buy new shares or fractions of shares every quarter, buying more when the prices are low.

All Big Five banks offer DRIPs (as do National Bank, Laurentian Bank and Canadian Western Bank). BMO, CIBC and Scotiabank also have share purchase plans (SPPs), allowing participants to contribute new money regularly to acquire more shares without commissions. You can find details at Canadian DRIP Primer online .

The prices of bank stocks could come down more in the next year to 18 months if the Canadian economy weakens. But that would make them an even better buy.

Analysts like stocks whose price-earning ratios do not exceed their earnings growth rate. The so-called PEG ratio (price-earnings to growth) should be less than one.

Only two of the Big Five banks have a PEG ratio that fits the rule. CIBCs is 0.93, TDs is 1.0, BMOs is 1.05, Scotiabanks is 1.19 and RBCs is 1.68.

My view: Keep the faith if you are a long-term investor looking for dividend growth or a cheapskate. You can buy bank shares at lower valuations and earn rewards down the road.

If you are a short-term investor who hates to see red ink, look for greener pastures elsewhere. Good luck piling into more expensive dividend stocks and hoping to make money if the market cools on them, as it has on bank stocks.