The week of February 27th to March 3rd sees a bakers' dozen of Canadian Dividend All-Stars report earnings. Of interest to dividend growth investors is the fact that there are potentially five of these who could announce a bump in dividends. Let's take a look at their streaks and estimate what their raise will be.
LAST WEEK - RESULTS
Before we get to this week's anticipated dividend raises, last week I estimated that CCL Industries, (OTC:CCDBF), Stantec (NYSE:STN), Magna International (NYSE:MGA) and Royal Bank of Canada (NYSE:RY) would all raise their dividends. All four came through and announced dividend increases. Here are my estimates vs actuals:
Despite posting a very respectable dividend raise, CCL industry's actual DGR was much lower than anticipated. The 15% increase is 50% less than both their 3YR and 5YR growth rates. Magna also posted a slightly lower than anticipated raise. On the other hand Stantec surprised with a double digit increase and Royal Bank of Canada's DGR also came in higher than expected.
Bank of Nova Scotia (NYSE:BNS) - Current Streak - 6 YRS, Current Yield - 3.68%
Earnings Release Date: Tuesday, February 28
Bank of Nova Scotia is one of two of Canada's 'big five' banks expected to raise dividends this week. Since 2014, BNS has consistently raised their dividends twice a year, typically along with the announcement of Q1 & Q3 earnings.
What can investors expect: Over the past few years, Bank of Nova Scotia's DGR has slowed to a low of 5.9% in 2016 as compared to its 3YR and 5YR rates of 6.4% and 7%. This is due in large part to the fact that their past 6 quarterly raises have remained unchanged at C$0.02/share. As such, I think it is fair to estimate that this trend will continue and that the Bank of Nova Scotia will raise their dividend by C$0.02/share, from their current quarterly payout of C$0.74 to C$0.76.
SNC-Lavalin Group Inc (OTCPK:SNCAF) (SNC) - Current Streak - 16 YRS, Current Yield - 1.91%
Earnings Release Date: Thursday, March 2
Snc-Lavalin Group Inc is a Canada-based engineering and construction company. They operate in 3 segments: Mining and Metallurgy, Oil & Gas and the Power segment. SNC has been a model of consistency having announced a dividend raise along with fourth quarter results since 2001.
What can investors expect? One of Canada's longest serving Dividend All-Stars, SNC has seen their DGR steady around 4% over the past few years. Over the past 5 years, they have been increasing dividends by a quarterly rate of C$0.01/share. Last year, this represented a 4% increase. Of concern this year is that SNC-Lavalin's EPS through nine months are lower by approximately 28% to C$1.69 and their cash flows do not look any better. The good news is that their payout ratio is still at a respectable 46% and as such I expect the 1 cent raise trend to continue which would represent a 3.8% increase to a new quarterly payout of C$0.27/share.
Toronto Dominion Bank (NYSE:TD) - Current Streak - 6 YRS, Current Yield - 3.18%
Earnings Release Date: Thursday, March 2
Canada's second largest bank by market cap is the second 'big five' bank expected to announce a dividend increase this week. Since 2014, TD has declared a yearly dividend raise along with earnings in late February or early March.
What can investors expect? TD has raised quarterly dividends by C$0.04 over the past few years and their current yield is currently the lowest amongst Canada's big banks. On the flip side, their 3YR and 5YR DGRs have been the highest amongst the big banks. I expect them to continue to be at the top end of dividend increases and expect them to announce at least another quarterly C$0.04 raise. That being said, given the performance of the banks thus far, I would not be surprised to see a C$0.05 quarterly increase which would result in a 9% DGR.
Earnings Release Date: Friday, March 3
Transcontinental is a printing company with operations in print, flexible packaging, publishing and digital media with operations both side of the border. Since 2014, Transcontinental has announced their quarterly dividend increases in early March.
What can investors expect? Transcontinental has been very consistent with their DGR rates as their 1YR, 3YR and 5YR rates all hover around 8%. Their current payout ratio is 39.36% and they have strong cash flows, therefore I have no reason to believe that they would deviate from their historical averages. As such, an 8% increase in quarter dividends would result in a C$0.015 increase and a new quarterly rate of C$0.20.
WILL THEY OR WONT THEY?
Canadian Western Bank (OTCPK:CBWBF, TSE: CWB) - Current Streak - 25 YRS
Earnings Release Date: Wednesday, March 1
Canadian Western Bank currently holds Canada's third longest dividend streak at 25 years. However, Canadian Western has been significantly impacted by the low oil prices as the majority of their operations are based in Western Canada. DGI were left disappointed in November when CWB left their dividend unchanged at a quarterly rate of C$0.23/share for the fifth straight quarter.
What can investors expect? As mentioned, Canadian Western has been particularly vulnerable to low oil prices and in 2016, net income decreased 15% YOY. Likewise, as per their year-end release "The balance of loans classified as past due but not impaired increased 76% from last year, with the majority of the increase occurring in the third quarter". Given their high exposure to oil and their increase in loans past due, Canadian Western is being cautious with their dividend. As Canada's third longest Dividend All-Star, I do expect them to raise dividends at some point in 2017 to keep the streak alive. When in 2017 is not as evident, but at some point over the next three quarters, I do anticipate a quarterly C$0.01 raise which would represent a 4.3% increase to C$0.24. This would be in-line with their past 12 quarterly increases which have all been 1 cent per share.
DIVIDEND STREAKS SHOULD CONTINUE
There is no reason to believe that 4 of these 5 Canadian Dividend All-Stars will not announce a raise this week. All four have fairly predictable raise patterns and three of the four are well positioned with decent payout ratios and rising earnings. The lone outlier is SNC, who has seen revenues, net income and cash flow decrease YOY. As such, I do caution investors that there is a chance SNC does not announce a raise this quarter given their recent struggles. As for Canadian Western, it will be a quarter-by-quarter approach as they continue to work through their high oil exposure. Until their overdue loan exposure starts to stabilize, I believe they will remain cautious.
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Disclosure: I am/we are long TD.
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.
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