There have been a number of dividend increases over the last week or so. The headlines have been dominated by BMO primarily, but National Bank, TD and Canadian Western Bank also raised dividends.
Bank earnings have been fairly flat. In my opinion, that’s okay with P/E multiples around 10-12. You can still get plenty of good returns long term at that valuation. TD is definitely the priciest of all the big banks, and if you followed them you’d see that their profits were relatively flat as well.
I’ll be posting more in detail about the bank earnings next week after I compile all of the results in my “Bank Earnings Scorecard Report”.
|Ticker||Name||Dividend Increase||New Yield||P/E||Payout||1 yr rtn|
|CWB.TO||Cdn Western Bank||5.6%||2.1%||16||33%||33%|
|ATD.B||Alimentation C-T Inc||14.2%||0.5%||18||9%||62%|
|BMO.TO||Bank of Montreal||2.7%||4.4%||11||48%||21%|
About The Increases
The banks are fairly straightforward. I especially like NA and BMO, both of which I own shares in. I don’t own shares in TD Bank, primarily because I always found another bank at a better valuation. TD has been expensive because investors feel their growth will be higher, and so they bid up the shares. But most of their return in the last year (~20%) has been due to P/E expansion from 12 to 14, not because of higher earnings. If they don’t deliver, investors might be disappointed.
I used to own Enbridge shares, but sold them because of the high valuation. If you like the forward P/E instead of the trailing P/E, it drops from 40 to 25. It’s a lot to pay for 10% earnings growth, but it is a top notch company. The yield of 3.2% is a little higher than the average of the last few years, which makes them slightly more interesting than they have been for a while.
Alimentation Couche-Tard Inc (ATD.B) has been on a tear, but the yield is almost nil. They have been expanding rapidly; earnings will have to catch up if another 60% return is expected in the next year.
Both National Bank and TD Bank announced they will be splitting their stock. These are the first bank stock splits since the 2008-09 recession. CIBC was anticipated to possibly be splitting their stock but no announcement was made today.
I’m not much of a market timer. I typically make one or two trades a month at most; usually for reinvesting dividends or perhaps when a company like Brookfield Office Properties (BPO.TO) gets a buyout offer, and sometimes when a company underperforms. I’ve noticed the wider market pullback over the last week, but it’s not really concerning. I’m glad banks are getting a bit of a break. This is a good pause to take a look at the earnings and see whether you should buy or sell. I suspect all of the results will show the banks still have a good risk/reward tradeoff.
If you have any questions, feel free to comment or send an email to firstname.lastname@example.org.