Investors anxious for Canadian banks to start raising their dividends should not hold their breath, says Desjardins Securities analyst Michael Goldberg.
He said in a note to clients:
The impact on operating profit of unsustainably high trading revenue and sustained pressure on loan loss provisions, we do not believe that earnings quality or quantity are yet sufficient to support dividend increases.
Mr. Goldberg added that future dividend increases are dependent on the direction of capital regulation.
If we assume that OSFI maintains its current minimum standards of 7% Tier 1 and 10% total capital and that the banks will want to maintain a comfortable margin of safety above that level (because the consequences of falling below it are so draconian), then this is another reason for banks not to increase their dividends and it may not even justify issuiing more common equity to strengthen that margin of safety.