For dividend growth investors seeking durable investments with excellent track records, there is almost nothing to compare to the Big Five of the Canadian banking sector: The Royal Bank of Canada (NYSE:RY), Toronto-Dominion (NYSE:TD), Scotiabank (NYSE:BNS), the Bank of Montreal (NYSE:BMO), and the Canadian Imperial Bank of Commerce (NYSE:CM).
All of the Big Five can measure their dividend records back to the 1800s. The Royal Bank of Canada has paid dividends since 1870, Toronto-Dominion has paid dividends to its shareholders since 1857, Scotiabank declared its initial dividend in 1833, the Bank of Montreal started paying dividends in 1829, and the Canadian Imperial Bank began its dividend payments in 1868. All five banks have sustained these payments without interruption since.
How have these five banks managed to be such brilliant dividend stocks for the best part of two centuries? A large part of it is the oligopoly that the Canadian banking sector has become: these five banks control approximately 90% of Canada's banking assets. The sector is stringently regulated, which puts high barriers to entry in the way of potential competitors and ensures the continued dominance of the Big Five.
This freedom from intensive competitive pressure (aside from each other) has allowed the Big Five to become large institutions not just in Canada, but also with significant operations abroad - particularly in the United States. This ensures that the size and quality of the loans that these banks offer to their commercial clients will easily surpass those on offer elsewhere. This size also ensures that the services offered to their customers are such that these customers are less likely to switch banks in the long run.
Currently, all of the Big Five banks are trading at cheap valuations, and their size (as indicated by market cap), their total assets and their total debt, combined with their payout ratios, all suggest their ability to reward shareholders with healthy dividends for many years to come.
|Market Cap||136.99 billion||124.59 billion||91.86 billion||62.75 billion||44.04 billion|
|Total Assets||1.18 trillion||1.18 trillion||896.27 billion||687.94 billion||501.36 billion|
|Total Debt||163.57 billion||92.98 billion||104.72 billion||45.16 billion||17.58 billion|
All above figures in Canadian dollars.
In summary, any one of the Big Five banks (or, indeed, all of them) look set to continue providing their shareholders with great rewards for many years to come, and therefore should be seriously considered for inclusion in a long-term portfolio.
Disclaimer: I am not a financial professional and accept no responsibility for any investment decisions a reader makes. This article is presented for information purposes only. Furthermore, the figures cited are the product of the author's own research and may differ from those of other analysts. Always do your own due diligence when researching prospective investments.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BMO over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.