Canadian Dividend All-Stars Expected To Announce Dividend Increases - Week Of August 28-September 1

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Includes: BMO, BNS, CBWBF, CM, LRCDF, NTIOF, RY, TD
by: Mat Litalien

Summary

Bank earnings season continues as 6 banking All-Stars are scheduled to report.

Both RY and CM announced surprise increases last week.

Although the potential is there, it is unlikely all 6 banks raise dividends.

Canadian banks dominate Canada’s earnings this coming week as six banking Canadian Dividend All-Stars are expected to release earnings. Given last week’s surprise increases, is it possible that all six banks raise their dividends? Before we take a look at that probability, let’s take a look at some of the surprise increases from last week.

LAST WEEK - RESULTS

Last week, there were only two dividend All-Stars scheduled to report earnings, but neither Royal Bank of Canada (RY) or Canadian Imperial Bank of Commerce (CM) were expected to raise dividends. However, both banks surprised investors with dividend raises.

On August 23, CM announced a fairly decent earnings beat and subsequently announced a 2.4% dividend increase, their second announced increase of the year. What is perhaps more surprising is that the increase also represent its third in the past four quarters. A day earlier, RBC raised its dividend by 4.6% despite missing analysts’ estimates. The raise also represents its second of the year and has set up what may amount to an impressive streak of dividend increases by its Canadian peers.

The remaining banks report

As mentioned previously, all All-Stars scheduled to report this coming week are Canadian banks and each could conceivably announce a dividend raise. If that should happen, here are my estimates.

Bank of Montreal (BMO) [TSE: BMO] – Current Streak – 5 YRS, Current Yield – 3.90%

Earnings Release Date: Tuesday, Aug 29

BMO just announced a C$0.02 dividend increase last quarter and back-to-back quarterly increases although not unheard of are somewhat of a rarity. However, should BMO surprise with a raise, I would anticipate a C$0.02/share raise, consistent with their past raises dating back to 2012.

Bank of Nova Scotia (BNS) [TSE: BNS] – Current Streak – 6 YRS, Current Yield – 3.92%

Earnings Release Date: Tuesday, Aug 29

Over the past few years, BNS has consistently raised dividends twice yearly, and given that their last increase was announced in March, it is highly probable that they announce their second increase next week. Since 2013, each dividend raise was C$0.02/share and I expect no difference this time around for a 2.6% increase.

Laurentian Bank (OTCPK:LRCDF) [TSE: LB] – Current Streak – 9 YRS, Current Yield – 4.60%

Earnings Release Date: Tuesday, Aug 29

Laurentian Bank also recently announced a dividend increase with their last earnings announcement. They raised dividends by C$0.01/share or 1.6% and should they surprise with another increase this coming week, I expect the raise to once again be C$0.01/share.

National Bank of Canada (OTCPK:NTIOF) [TSE: NA] – Current Streak – 7 YRS, Current Yield – 4.17%

Earnings Release Date: Wednesday, Aug 30

Much like BMO and Laurentian Bank, National Bank announced a dividend increase last quarter. However, unlike the other two, National Bank’s June raise was a complete surprise and came immediately following an increase in March. Will National Bank raise in three straight quarters? Although highly unlikely, should they raise I expect it to be no more than C$0.01/share or 1.7%.

Canadian Western Bank (OTCPK:CBWBF) [TSE: CWB] – Current Streak – 25 YRS, Current Yield – 3.23%

Earnings Release Date: Thursday, Aug 31

Canadian Western currently holds the longest dividend growth streak among its peers at 25 years. Unfortunately, if they don’t announce an increase next week it will have effectively paid out the same dividends in 2017 as it did in 2016. The bank has publicly stated that they are targeting a payout ratio of 30% and their current payout ratio of 42% is well above this number. Next week, they will either lose their status as a dividend growth company or they will break with their policy and offer investors a token raise of C$0.005 or 2.1% so as to keep their dividend growth streak alive.

Toronto Dominion (TD) [TSE: TD] – Current Streak – 6 YRS, Current Yield – 3.70%

Earnings Release Date: Thursday, Aug 31

Unlike the majority of their peers who have been raising dividends twice yearly, TD has remain steadfast in raising their dividends once a year, typically in February. Will TD break from tradition and join their peers by raising their dividend for the second time this year? If they do, I expect a C$0.02/share or 3.3% raise for a new quarterly dividend of C$0.62/share.

Don’t expect all to raise

Despite a few surprises last week, I don’t fully expect all Canadian banks to announce dividend raises. Last quarter three of the banks listed above had announced a dividend increase, and a raise would result in back-to-back raises for both Larentian and BMO, neither of which has announced back-to-back increase since the financial crisis. Furthermore, it is highly unlikely that National Bank, which already sports the second highest payout ratio among all Canadian banks, announces a third consecutive increase. In order for TD to announce a raise, it would have to break from historical trends which is probably a little more likely than those poised to announce back-to-back increases. Canada Western remains a long shot with their exiting dividend policy, but with a 25 year streak on the line, don’t be surprised if they announce a token raise. Finally, that leaves us with Bank of Nova Scotia as the only Canadian bank who is all but a guarantee to announce a dividend raise. With banks due to benefit from rising interest rates, the pace of dividend increases may continue to be brisk over the next little while. That being said, the banks continue to face fears of a housing collapse, and with Toronto’s market currently in correction territory, investors should continue to monitor how it impacts bank earnings.

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Disclosure: I am/we are long TD, BMO.

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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