(04/04/13) Dividends Rising at Canadian Banks

The greater payout is brightening the outlook for the country's largest banks, writes David Dittman of Investing Daily.

Toronto-Dominion Bank (TD), the second-largest of Canada’s Big Six with a market capitalization of $77.99 billion, is leading the way with a 9.1% increase to its dividend. TD will pay 81 cents per share, up from 77 cents.

Since the Great Financial Crisis, it has raised its dividend five times, settling back into a pattern of boosting its payout every other quarter.

Management reported adjusted earnings for the quarter of $1.9 billion, a 9% increase from a year ago. Management expects the operating environment to “remain challenging.”

Bank of Nova Scotia (BNS)—our top choice among Canada’s Big Six—closed out fiscal 2013 first-quarter reporting season for the group by reporting a 13.2% increase in net income, to $1.625 billion from $1.436 billion a year ago. Diluted earnings per share—or cash earnings—were $1.25, up from $1.20 in the prior corresponding period.

Scotiabank raised its quarterly dividend by 5.3% to 60 cents per share. It’s the fourth increase since March 2011.

We favor Scotiabank over its Big Six peers because of its high exposure to overseas markets. International banking net income grew by 19% to $466 million during the first three months of fiscal 2013.

Scotiabank has operations in more than 50 countries, including Mexico, Thailand, and Peru, which will provide insulation, should consumer and home-loan growth slow meaningfully—as many observers expect—back in Canada.

Royal Bank of Canada (RY), the largest of the Big Six with a market cap of $88.37 billion, boosted its quarterly dividend by 5% to 63 cents per share. RBC has now announced three more payout increases since its first post-Great Recession move in May 2011.

Management reported net income of $2.07 billion for the quarter ended January 31, up 12% from a year ago.

Bank of Montreal (BMO) raised its quarterly dividend by 2.8% to 74 cents per share. It’s just the second payout increase for BMO since the end of the GFC. The bank, Canada’s fourth-largest, raised from 70 cents per share—a level it reached in August 2007—to 72 cents per share in August 2012.

Canadian Imperial Bank of Commerce (CM) maintained its quarterly payout rate at 94 cents per share. After announcing a 13% increase in August 2007, CIBC maintained that rate for the ensuing 15 quarters, finally raising it again in August 2011 to 90 cents per share.

CIBC announced just its second post-Great Recession dividend increase in August 2012, to the present rate of 94 cents. It’s likely that Canada’s fifth-largest bank, with a market cap of $33.06 billion, will hold steady until August of this year.

Management reported adjusted net income of $895 million for the first quarter of fiscal 2013, up 7.4% from a year ago.

National Bank of Canada (NTIOF) boosted its dividend rate from 62 cents, a rate it held from November 2007, to 66 cents in November 2010. That made it the first of Canada’s Big Six banks to raise its dividend following the Great Financial Crisis.

National Bank, the smallest of the Big Six in terms of market capitalization—and still often left out in favor of the more traditional Big Five parameter—is also the most concentrated in Canada.

No. 6 has raised its dividend four more times since the November 2010 declaration, but held steady when it revealed fiscal 2013 first-quarter results. Adjusted net income for the first quarter was a record $361 million, up 2% from $353 million for the first quarter of fiscal 2012.