It’s raining dividends, hallelujah! Canadian banks expected to post strong results

TORONTO, Nov. 28 (Reuters) – Canada’s six largest banks are set to resume increasing dividends and share buybacks after a nearly two-year hiatus and post strong quarterly earnings this week, which could bolster the attractiveness of the sector to yield-hungry investors, even though stocks are trading near all-time highs.

The market will also be looking for clues to expected growth in bank spending next year as wage pressures intensify and long-awaited improvements in net interest margins as interest rates rise.

The “Big Six” Canadian banks – Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia (Scotiabank) (BNS.TO), Bank of Montreal (BMO.TO ), The Canadian Imperial Bank of Commerce (CM.TO) and the National Bank of Canada (NA.TO) – have an average dividend yield of 3.3%, according to Reuters calculations.

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This compares to the global industry median of 2.5%, according to data from Refinitiv.

Dividend increases, reportedly the first since the country’s financial regulator imposed a moratorium in March 2020 that was lifted earlier this month, could range from 10% for Scotiabank to the lower end of 34 % at National Bank, Gabriel Dechaine, an analyst at National Bank Financial, wrote in a November 22 memo describing the upcoming hikes as a “tsunami of dividend growth.” Read more

Banks are also expected to announce repurchases of around 2% of their outstanding shares on average.

“This will be a big increase (in the dividend) and it will help them reduce the excess capital on their balance sheets,” said Steve Belisle, portfolio manager at Manulife Investment Management. “This translates into a better ROE (return on equity).”

Even without the higher dividends or buybacks, Canadian bank stocks (.GSPXTBA) hit record highs, in part thanks to better-than-expected earnings due to the release of reserves set aside to cover loan losses. that did not materialize.

LOAN GROWTH ACCELERATION

Canadian banks will release their fourth quarter results, and Scotiabank will release the results on Tuesday.

Analysts expect the adjusted profits of the top six lenders to increase by about 37% year-over-year, helped by a recovery in business and credit card lending, strong growth in mortgage loans and the continued release of reserves.

Lending growth is expected to accelerate as savings accumulated during the COVID-19 pandemic have increased the purchasing power of consumers and businesses even at higher prices, with the broader economic recovery adding fuel on fire, said Philip Petursson, chief investment strategist. at IG Wealth Management.

The only blemish on the horizon may be in the form of non-interest charges. They could be 1% higher than in the third quarter, with much of the expected increase due to variable compensation, and 4% in fiscal 2022 due to higher labor costs. work and continued investment in technology, CIBC Capital Markets analysts wrote in a note.

Profits in capital markets could also decline, although higher-than-expected trading income could help offset lower investment banking fees, some analysts said.

Profits are expected to be 6.6% lower than in the third quarter, largely due to reserve releases, which are difficult to estimate and have produced better-than-expected results in previous periods, and could again lead to positive surprises, analysts said.

Improving bank income growth, strength of capital positions and expectations of return on equity to stay in mid-teens longer than expected are positives, National Bank’s Dechaine said.

Wealth and asset management units are also expected to see further growth as consumers continue to deploy piles of cash they amassed during the pandemic, Petursson said.

“It’s really hard to see where the warts would be on bank profits,” he added.

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Reporting by Nichola Saminather Editing by Denny Thomas and Paul Simao

Our Standards: Thomson Reuters Trust Principles.

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