Dividend 'bonanza' coming from Canada's banks: Analyst & More News Here

With one other earnings season simply across the nook, a veteran analyst stated traders ought to rely on a flurry of dividend hikes from Canada’s lenders.

“On the capital front, with no change to dividend policies in [the previous quarter], we expect a bonanza of dividend hikes, while low share prices could drive more share buybacks in the quarter,” wrote John Aiken, Barclays’ head of analysis for Canada, in a report back to shoppers Wednesday.

Canada’s banks had been prevented from elevating their dividends or shopping for again shares from March 2020 till early November 2021 as their regulator, the Office of the Superintendent of Financial Institutions (OSFI), sought to defend Canada’s monetary system from a feared surge in insolvencies because of the pandemic.

But the monetary devastation by no means hit the banks’ mortgage books to the extent that some observers feared, and so OSFI unshackled the sector on Nov. 4, prompting an preliminary wave of dividend hikes and buybacks within the ensuing weeks.

Aiken said he expects all of the banks aside from TD Bank Group, which he anticipates will evaluate its payout technique later this 12 months, will announce dividend hikes once they report leads to the coming weeks.

He singled out National Bank of Canada as being positioned for essentially the most beneficiant hike, which he estimates at a 22 per cent enhance (from the present stage of $0.87 per share), because it has the bottom payout ratio and what he described as “relatively solid excess capital levels.”

Aiken stated he expects low-to-mid single digit dividend boosts from the opposite banks. He acknowledged that Bank of Montreal’s payout ratio is at the moment narrowly under the financial institution’s goal and that it has a hefty capital buffer (with Common Equity Tier 1 ratio at 14.1 per cent versus the required 10.5 per cent), however he anticipates the financial institution will solely increase its dividend two per cent because it seeks to protect capital whereas making an attempt to shut its takeover of Bank of the West within the United States.

And with financial institution shares just lately coming below stress amid the broader market downturn, Aiken stated banks are well-positioned to be “active and opportunistic” scooping up their shares. He famous the shares are low cost in historic context, as they commerce at a ahead price-to-earnings a number of of 9.7 versus the 20-year common of 11.2. As a results of the volatility, Aiken lowered his worth targets on the entire banks he covers. The sharpest mark down was on Canadian Imperial Bank of Commerce; the place Aiken minimize his goal 21 per cent to $143.00 from $180.00.

As for the quarter, Aiken estimates earnings among the many Big Six banks will fall a mean of 9.2 per cent quarter-over-quarter. He pinpointed BMO as going through the sharpest sequential drop-off (16.6 per cent), whereas TD’s revenue is estimated to dip 0.2 per cent from the earlier quarter. Compared to a 12 months earlier, Aiken estimates common revenue development of 1.5 per cent.

In his report, Aiken famous rising rates of interest are a “double edged sword” since they bolster margins whereas threatening to gradual mortgage exercise. He additionally said he expects capital markets income will reasonable, and credit score high quality might shock to the upside since Canada’s labour market has recovered to pre-pandemic ranges.

“While the recent market volatility has tested the banks’ reputation as a ‘relative safe place to hide’, we believe the banks have strong capital and reserve levels to weather the storm,” Aiken wrote.

Here’s when the Big Six banks are scheduled to launch their fiscal second-quarter outcomes:

• May 25: BMO, Bank of Nova Scotia
• May 26: Royal Bank of Canada, TD, CIBC
• May 27: National Bank

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