InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

$1,230 in Instant Income?

$1,230 in Instant Income?Our top income expert recently pulled the wraps off his breakthrough moneymaking technique. And he proved beyond a shadow of a doubt how you can use it to generate instant cash payouts of up to $1,230 (or more). Over and over again. But then he took things a big step further and guaranteed you can make $1 million by following his program. And the second he did, our phones went nuts! Space is limited — get the details here.

 

 

Canada’s Big Six Offer Big Payouts

By Ari Charney on June 2, 2016

When it comes to the financial sector, U.S. income investors have leaned heavily on Canada’s Big Six. After all, Canada’s banks have a reputation for conservatism that stands in contrast to their more profligate U.S. peers.

And like many Canadian firms, their dedication to dividends far surpasses their counterparts in the U.S. Over the past five years, for instance, the average bank among Canada’s Big Six has boosted its payout by 7.9% annually. That means shareholders have seen their incomes rise by 46.3% over that period. Not bad. Not bad at all.

Of course, that’s just the average. Three of the Big Six have raised their dividends even more during that time. For instance, Toronto-Dominion Bank (NYSE: TD, TSX: TD) has grown its payout by 10.8% annually over the past five years, giving its shareholders a whopping 67% pay raise over that full period. Nice.

So it’s no surprise that the stocks of these banking behemoths yield more than the average stock on the Canadian market. While the Canadian benchmark S&P/TSX Composite Index (SPTSX) yields 3.0%, the Big Six collectively yield 4.0%.

And because Canada’s banks are serial dividend raisers, their forward yields—a metric that annualizes a company’s most recent quarterly payout and compares it to the current share price—tend to be even higher. Indeed, right now, they average an attractive 4.4%.

With so many dividend-paying stocks bid up by yield-hungry investors, you might assume that Canada’s Big Six trade at premium valuations. However, on both a price-to-earnings (P/E) and price-to-book (P/B) basis, Canada’s biggest banks trade at a discount to the broad market—at 11.7x and 1.7x, respectively, versus 21.6x and 1.8x for the SPTSX.

In fact, while Canada’s broad-market valuation is within shouting distance of its trailing 10-year high, at 22.9x, the Big Six not only trade at a steep discount to their high, which was 18.0x, they also trade at a moderate discount to their average P/E over this period, which was 12.9x.

Even so, such values don’t come without concerns. And Canada’s Big Six have three big concerns at the moment, and one, in particular, has weighed on recent earnings, including the latest earnings season: margin compression from benchmark interest rates that remain near historic lows, the energy crash, and the housing bubble.

At the moment, the two latter factors are commanding the most attention, since a flattening yield curve doesn’t make for compelling headlines.

While real estate markets vary by region, it’s hard to ignore the fact that the average detached single-family home in Canada’s two biggest metropolitan areas—Vancouver and Toronto—cost north of seven figures. Yes, that’s seven figures, not six figures. And, yes, we’re talking about average prices.

These statistics have prompted two Big Six CEOs—the heads of National Bank of Canada (OTC: NTIOF, TSX: NA) and the Bank of Nova Scotia (NYSE: BNS, TSX: BNS)—to sound the alarm this earnings season, with calls for regulators to boost down-payment requirements. Scotiabank CEO Brian Porter said concerns about prices in the country’s two biggest real-estate markets have prompted the bank to cut back on mortgage lending there.

But a housing crash, or at the very least, a soft landing, is not yet underway, while the energy crash has already seen what may have been its ultimate bottom.

Consequently, most headlines this earnings season concerned the rise in bad loans, largely due to the turmoil in the energy sector. Royal Bank of Canada (NYSE: RY, TSX: RY), the largest Canadian bank by market cap, saw bad loans jump by 19% quarter over quarter, to C3.7 billion. Meanwhile, RBC increased its estimate of potential future credit losses by 12% quarter over quarter, to C$460 million.

Fortunately, when comparing these numbers to the bank’s overall loan book, the situation appears contained. RBC’s ratio of gross impaired loans to total loans was just 0.71%.

The same holds true for the rest of the Big Six, whose average ratio of non-performing loans to total loans is a manageable 0.70%.

The one exception right now is Bank of Nova Scotia, whose ratio stands at 1.08%, though that’s not too far off its average of the past few years. That may be due, in part, to the fact that the bank has a more substantial international exposure than Canada’s other banks, particularly in the emerging markets.

So while the Big Six seem to have a reasonably good handle on the energy crash, it remains to be seen how they navigate whatever woes arise from Canada’s housing market.


You might also enjoy…

 

Here’s What’s Really Going to Crush the Market

Most folks understand the basic concept of inflation… things cost more money. But tragically, most don’t understand the real implications of what it means for their financial future. 

Or just how dangerous it’s becoming right now. Today.

And there are two reasons for that…

First, the U.S. government’s calculations barely take into account two of the things you and I are paying more and more for every day: energy and food.

Second, since inflation really hasn’t been an issue for the past 30 years here in the U.S., most analysts won’t dare to say it’s on the rise because they’ll suffer professionally. 

But I’ve made a name for myself by always saying what needs to be said. Which is why I’ve prepared a new special report that’ll give you simple instructions on how to protect yourself from the coming storm.

And better still…

It gives you the full story on the six types of investments that are destined to soar 275%… 375%… even up to 575% over the next few years as the winds of inflation flatten the U.S. economy.

You can get your free copy here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.