Banking & Finance

Canadian Bank Dividend Hikes, Lesson For U.S. (CM, BMO, BNS, TD, BAC, C, JPM, WFC)

Regulators have hinted in the U.S. about the stage being set for a return to normalized dividends from major banks.  If Canada is a model and if the Canadians act as a harbinger, dividend hikes could be on the way sooner rather than later for U.S. bank investors.  After the close of trading on Tuesday came word that National Bank of Canada (NA.TO) was the first of Canada’s six largest banks to raise its quarterly dividend.

This action is going to highlight the following Canadian banking giants: Canadian Imperial Bank of Commerce (NYSE: CM), or CIBC; Bank of Montreal (NYSE: BMO); Bank of Nova Scotia (NYSE: BNS); and Toronto-Dominion Bank (NYSE: TD).  The dividend hike was apparently expected by some Canadian analysts, but it highlights the ongoing dividend conundrum that exists here in the money center banks in the United States.  It may be quite some time before Citigroup, Inc. (NYSE: C) and Bank of America Corporation (NYSE: BAC) get to hike their quarterly payouts to common shareholders, but J.P. Morgan Chase & Co. (NYSE: JPM) is expected to immediately hike its quarterly payout when it gets a green light from regulators.  Wells Fargo & Co. (NYSE: WFC) and others are expected to follow suit shortly thereafter.

National Bank of Canada reported fourth quarter earnings grew 19% that beat expectations due to wealth management fee business and as its personal loan and commercial loans grew. Net income was C$287 million, or C$1.66 per share, versus $1.57 per share expected from Thomson Reuters.  The bank raised its dividend to C$0.66 a share from C$0.62 with a February 1 payable date for holders of record on December 23.  The last time that the bank raised its payout was in late 2007.

It would seem like a stretch to call for Canadian banks to lead U.S. banks had we not witnessed what we witnessed in the last two-plus years.  National Bank of Canada opened up the quarterly earnings season for Canada’s big six banks and expectations are such that higher income and some higher dividends will come from the group.  The yield is now about 3.9% based on a C$67.84 close.

The current bank stock yield summary is as follows: BMO’s yield is close to 4.6%, CIBC’s yield is close to 4.3%, Bank of Nova Scotia’s yield is about 3.6%, and TD’s yield is 3.2%.  J.P. Morgan Chase currently yields only about 0.5%, but if it were magically able  to revert to its former payout (not expected) then it would yield closer to 4%.  Wells Fargo currently yields about 0.7% but if it reverted to its old payout (also not expected) then it would have a yield of about 4.9%.

Calling for Canadian money center banks to lead U.S. money center bans, and the subsequent regulatory policy, is a admittedly a stretch.  It is a thought, and we are still closer to the healthier U.S. banks being allowed to return to higher common dividend payouts.  Just don’t hold your breath for those same old yields that you used to see.

JON C. OGG