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Growing Dividends in the Great White North

By David Dittman on August 31, 2012

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Canada’s Big Six banks are widely recognized as among the safest, most stable financial institutions in the world. To safety and stability we can add another characteristic, which from an income investor’s perspective may be the most compelling: dividend growth.

Five of the Big Six raised their quarterly payouts by an average of 4.6 percent this week, boosting dividends on the back of solid operating results for the third quarter of fiscal 2012. Average year-over-year dividend growth for the Big Six in its entirety is 8.2 percent.

Toronto-Dominion Bank (TSX: TD, NYSE: TD) led the way, raising its dividend 6.9 percent from the CAD0.72 per share it paid for the second quarter of fiscal 2012 to CAD0.77 for the third quarter. TD’s new payout rate is 13.2 percent higher than what it paid a year ago, CAD0.68 per share.

Royal Bank of Canada (TSX: RY, NYSE: RY) will pay CAD0.60 per share, up 5.3 percent from CAD0.57 in the second quarter and 11.1 percent from CAD0.54 a year ago.

Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM) boosted its payout 4.4 percent from CAD0.90 to CAD0.94, its first increase since it announced a 3.4 percent increase in August 2011. The latter was CIBC’s first increase since it went from CAD0.77 per share to CAD0.87 in August 2007.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) boosted its dividend 3.6 percent from CAD0.55 in the second quarter to CAD0.57. Scotiabank paid CAD0.52 a year ago. Bank of Montreal (TSX: BMO, NYSE: BMO) will pay CAD0.72 per share, up 2.8 percent from CAD0.70, its first dividend increase in five years.

The only one of the Big Six not to announce a higher payout rate was National Bank of Canada (TSX: NA, OTC: NTIOF), the smallest among the group, a recent inclusion in what used to be a club known as the “Big Five,” and until now a leader in post-Great Financial Crisis dividend growth for banks in the Great White North.

TD reported net income of CAD1.63 billion, up from CAD1.42 billion during the third quarter of fiscal 2011. Earnings per share (EPS) were CAD1.78, up from CAD1.58 per share a year ago. Adjusted EPS were CAD1.91, up from CAD1.75.

Revenue increased to CADD5.84 billion from CAD5.38 billion, boosted by net interest income and non-interest income. Provisions for credit losses climbed to CAD438 million from CAD380 million a year ago.

Canadian banking net income grew 9 percent to CAD864 million, while revenue increased 13 percent to CAD2.73 billion. Wealth management and insurance net income was up 3 percent to CAD360 million. Revenue, however, slid 2 percent to CAD1.009 billion.

US banking net income dropped 8 percent to CAD279 million, while revenue slipped 2 percent to CAD1.5 billion. Wholesale net income rose 61 percent to CAD180 million, as revenue climbed 39 percent to CAD638 million on improved fixed-income and credit trading.

TD also boosted its target payout range to 40 percent to 50 percent of adjusted earnings.

RBC earned CAD2.24 billion, or CAD1.47 per share, up from CAD1.29 billion, or CAD0.83 per share, in the third quarter of fiscal 2011.

Adjusted EPS were CAD1.31. Total revenue was CAD7.76 billion, up from CAD6.9 billion a year ago.

Net income from continuing operations was up 18 percent to CAD1.978 billion, boosted by record earnings in Canadian banking and strong performance in capital markets.

Canadian banking net income was CAD1.13 billion, up CAD239 million from a year ago on higher mortgage and credit card volumes. Capital markets results almost doubled to CAD486 million, up from CAD259 million a year ago on higher fixed-income trading results.

Wealth management profit slid by CAD36 million to CAD156 million on regulatory and legal expenses as well as lower transaction volumes. International banking posted a net loss of CAD31 million, dragged down by an CAD11 million charge related to the acquisition of RBC Dexia and a higher provision for credit losses in its Caribbean banking operations. Insurance sales were up 27 percent to CAD179 million, partly on lower claim costs in Canada.

RBC’s provision for credit losses of CAD325 million was down CAD23 million from the prior quarter.

CIBC’s profit rose by 42 percent in the quarter to CAD841 million, or CAD2 per share, from CAD591 million, or CAD1.33 a share, for the third quarter of fiscal 2011. Adjusted earnings were CAD2.06 per share. Revenue rose 0.6 percent to CAD3.15 billion.

Consumer lending and business banking earnings rose 7.8 percent to CAD594 million. Wealth management profit was CAD76 million, an 8.6 percent increase from a year ago. CIBC’s provisions for credit losses rose to CAD317 million from CAD310 million a year ago.

Bank of Montreal reported a profit of CAD970 million. Canadian consumer banking profit rose 2.3 percent to CAD453 million, while profit from its US unit BMO Harris Bank rose 43 percent to CAD129 million, including the recently acquired Marshall & Ilsley, which at CAD4.1 billion was BMO’s biggest-ever deal.

BMO Capital Markets posted an investment-banking profit of CAD232 million, down 14 percent from a year ago as underwriting and advisory fees fell 13 percent to CAD123 million. Trading revenue rose 38 percent to CAD213 million, led by interest-rate contracts and commodities. BMO’s private-client group, which includes insurance and mutual funds, posted net income of CAD109 million, up 4.8 percent. BMO set aside CAD237 million for bad loans, up 3 percent from a year ago.

Scotiabank posted a CAD2.05 billion profit, including an after-tax gain of CAD614 million on the sale of its Bay Street headquarters, Scotia Plaza.

Excluding items Scotiabank earned CAD1.22 a share. Domestic banking earnings rose 22 percent to CAD521 million on asset expansion and deposit growth. International profit surged 29 percent to CAD442 million. Scotiabank has operations in 50 countries and this month announced acquisitions in Colombia and Mexico.

Wealth management profit climbed 9.2 percent to CAD284 million, while investment banking net income rose 31 percent to CAD398 million. Scotiabank set aside CAD402 million for bad loans, up from CAD250 million a year ago.

Scotiabank announced Wednesday that it’s buying ING Bank of Canada from its Dutch parent company in a CAD3.13 billion deal.

Although it didn’t announce another dividend increase with this set of numbers National Bank of Canada did raise its quarterly payout from CAD0.75 per share in the first quarter of fiscal 2012 to CAD0.79, a 5.3 percent increase that brought its cumulative dividend growth since 2007 to 31.7 percent.

National Bank was the first of the Big Six to raise its dividend in the aftermath of the GFC and has raised its regular payout rate a total of five times in the last five years.

The Quebec-based bank’s profit was up 13 percent year over year to CAD379 million. Adjusted net income for the period ended Jul. 31, 2012, was CAD1.98 per diluted share, up from CAD1.86 a year earlier. Revenue grew 11 percent to CAD1.2 billion.

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