Wednesday, February 19, 2020

6 Canadian Banks That Grow Their Dividends


For vacation this winter, my wife and I brought our kids to an all-inclusive resort in Varadero Cuba. It had been six years since our last trip to Cuba, and I couldn’t help noticing some of the positive changes. From small things like hot showers and a wider array of choices at the buffet, to more impactful changes like affordable, high-speed Internet access at the resort, more tourists from Europe, and many new resorts being added along the beautiful beach strip. We stayed at one of three “Melia” resorts in a row and took a train (basically a converted golf cart) to an actual shopping mall at the swankiest of the three hotels. At the mall, to my surprise, I saw a Cuban bank that likely did a great business exchanging tourists’ currency into Cuba convertible pesos. Although I was unfamiliar with the bank in question, seeing a financial institution wasn't a big surprise given the amount of development in Cuba in recent years.

Between my day job and the concentration of banks in my Investment Holdings, I think about banks quite a bit. Before the Royal Bank of Canada releases their Q1 2020 earnings on February 21st, I thought it would be a good time to take a look at the big six Canadian banks. The below table contains both market information (upper half) and operating information relating to the banks' capital levels, asset quality, profitability and funding profiles (bottom half).

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Canadian banks are incredibly complex businesses, and I recommend understanding how and where they generate their revenue/profits before making any investments. The above table is simply a starting point that might high-light some interesting links between a bank's valuation, yield, profitability and operating metrics. For instance, you might ask yourself why CIBC trades at such a big valuation discount compared to their domestic peers. However, based on their negative EPS growth over the past year, the lowest profitability in the peer group, and the bank's costly acquisitions in recent years, the valuation discount might be warranted.

Which of the above Canadian banks do you find most attractive currently?

2 comments:

  1. To be honest, I don't look at valuations. I accumulated RY shares through working there and they are a core position for me. I just let the DRIP work it's magic in my RSP and TFSA now.

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    1. Do you still work at Royal Bank? That's been a great company to accumulate. Congrats on the dividend raise today!

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