Chris Damas

Canadian Banks Should Follow Dividend Cut Trend

So many people talk about bank dividend yields without very much knowledge of the operations. "Banks" are highly complex financial risk-takers as we recently found out.

Sophisticated investors see through the yields to the value of the underlying operations. Wells Fargo rallied after the cut on Friday. But JPM has declined since the initial rally after cutting their payout. But the market has also declined.

The Bank of Montreal recently reported 40 cents in cash earnings making their actual Q1 payout ratio an unsustainable 175%. But they added back charges for "unfavorable capital market environment" to come up with $1.09 a share. Then the CFO says that $1.09
should be a pretty good proxy for core earnings. Can you say the good part of the bank is "core" and the bad bets are "non-core"? Investors aren't that stupid.
A cut would probably make all the high yield dividend collectors that didn't understand the operations dump the stock.
That includes a number of "professionals".