Canadian Banks Resume Dividend Hikes

By Runisan Natheeswaran, Staff Writer

This past week, The Big Six Canadian Banks reported their fiscal fourth-quarter earnings report and set their long-awaited dividend hikes and share buybacks after a year and a half hiatus. 

The major six banks, Royal Bank of Canada (TSX:RY), Toronto-Dominion Bank (TSX:TD), Bank of Nova Scotia (TSX: BNS), Bank of Montreal (TSX: BMO), Canadian Imperial Bank of Commerce (TSX:CM) and National Bank of Canada (TSX: NA), traditionally have a proven track record of steadily increasing dividends, and on average, have a dividend yield of 3.3%

During the early days of the pandemic, a ban was imposed on banks and lenders from hiking regular dividends and buying shares back by Canada’s banking regulator, with the goal of ensuring the financial system can withstand the impact of COVID-19. However, the banks have not only navigated through the pandemic largely unscathed but thrived in the process, with the sector returning 32% in the last twelve months. 

Due to this, Canada’s banking regulator cleared the way for banks and insurers to raise dividends and resume buybacks on November 4th, 2021. Peter Routledge, Head of the Office of the Superintendent of Financial Institutions (OSFI) said that the reason for the ban “are no longer necessary”, and that the decisions regarding capital distribution should belong with the financial institutions. 

The announcement was great news for the major banks, as they have been sitting on excess capital for nearly 2 years and can now utilize this capital to their benefit. Throughout this week, The Big Six Canadian Banks raised their dividends by a staggering 15% on average and announced their intentions to repurchase up to 160 million shares, equal to 2.7% of outstanding stock. 

Canadian bank stocks have always been a staple for yield-hungry investor’s portfolios, and this recent increase in shareholder payouts can boost the sector’s appeal and rally bank stocks further in the short to medium term. In spite of this, fourth-quarter earnings for Canadian banks have been a mixed bag, with Bank of Nova Scotia, Toronto-Dominion Bank and BMO beating expectations, while Royal Bank of Canada, Canadian Imperial Bank of Commerce and National Bank of Canada missed. 

Doug Warwick, managing director and portfolio manager at TD Asset Management sees a different outlook despite the mixed reports, stating that the Canadian banks are trading on average around 11.1 times earnings, and “bank sectors are as cheap, or even cheaper than they were before the pandemic.”
The Big Six Canadian Banks clearly have a lot of work ahead of them in order to continually grow in share price, especially with the discovery of the new Covid-19 variant, Omicron, but one thing is for certain, banks will continue to push out more dividend increases and share buybacks will continue for the foreseeable future.

Photo by Brxxto on Unsplash

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