Canadian Bank Yields & Payout Ratios

I came across these numbers yesterday in an article entitled “Could U.S. bank dividend contagion spread north?” by Rob Carrick from the Globe and Mail. Rob Carrick calculated the below figures based on the stock prices at the close of January 16th, 2008 and on the estimated earnings per share for 2008. Please click here to view Rob Carricks’ entire article.

Bank of Montreal (BMO)
Yield: 5.09%
Payout Ratio: 46.7%

National Bank of Canada (NA)
Yield: 5.06%
Payout Ratio: 39.3%

Cdn. Imperial Bank of Commerce (CM)
Yield: 5.03%
Payout Ratio: 38.7%

Royal Bank of Canada (RY)
Yield: 4.11%
Payout Ratio: 41.7%

Bank of Nova Scotia (BNS)
Yield: 4.00%
Payout Ratio: 40.0%

Toronto-Dominion Bank (TD)
Yield: 3.43%
Payout Ratio: 36.2%

Bank Dividend Growth 2000 to 2007

I came across this interesting chart while doing my daily read at globeinvestor.com. This chart really reinforces the power of the dividend growth strategy. It nicely summarizes the dividend growth of the big Canadian banks over the last seven years. I know nothing is too good to be true but historically the bank stocks sure look like it.

For the complete story please click here.

Dividend Growth Stock VI

Bank of Montreal BMO

“Founded in 1817 as Bank of Montreal, today BMO Financial Group is a highly diversified financial services provider. We offer clients a broad range of personal, commercial, corporate and institutional financial services across Canada and in the United States through BMO Bank of Montreal, BMO Nesbitt Burns, BMO Capital Markets and our Chicago-based subsidiary, Harris Bank.”

-founded in 1817
-policy to payout 45% to 55%
-paid dividends for over a century
-dividend increased 80% from 2002 to 2006
-current yield of 4.2%
-trailing P/E 13.4
-2007 estimated P/E 11.5
-2008 estimated P/E 10.8
-ROE 19%

Major Purchase and Depressed Markets

Although the markets have fallen a lot recently I haven’t made any purchases. The main reason I haven’t pulled the trigger yet is simple...I have very little available cash. I recently purchased a cottage and as such will need all of my available funds for the down payment. However, I have a small amount of money available to invest in my RRSP and I’m currently looking to add one of the following companies IPL.UN, BMO, BNS. Longer term I believe all of the above three names are a good buy and I currently have an order in for IPL.UN at $8.50 (I’m doubtful that it will reach that level but if it does I’ll be an owner). I may have more available cash after the financing for the cottage is worked out. However, until the details of the cottage financing are worked out I only have enough money for one position.

The timing of the cottage purchase was certainly not perfect however, we have been looking in the area that we bought in for about 4 years and this was the first opportunity to buy in that time period so we jumped on it. We don't view the cottage as an investment and plan on never selling.

Time to Buy Financials?

Is there actually a global credit crunch? Is there a major economic crisis in the making as a result of the US sub-prime mortgage market? I don’t think anyone really knows but if I was a betting man I’d bet YES to the above two questions. Ok, so now that we’ve established that there might be a legitimate credit crunch what do we do? Panic? Sell all our holdings? Never buy another stock? That might work for some people but what I’d suggest is scan the market, identify which sectors and companies are taking the biggest hits and evaluate whether or not these out of favour stocks might be a good fit for your portfolio. The recent market declines are eminiscent of 2002 when I picked up TD. With many of the Canadian banks hitting 52 week lows I think that the time might be near for Canadian investors to get their fingers back on the buy button. Remember...BUY ON FEAR, SELL ON GREED.

US Banks

The US banks haven’t been a pleasant place to be invested recently. Here is a snapshot of the price history of some of the big US banks over the last month (remember these loses exclude any losses resulting from the rising CDN dollar)

C
June 25: $51.69
Now: $49.21
Change: DOWN 4.8%

BAC
June 25: $48.85
Now: $47.93
Change: DOWN 1.8%

JPM
June 25: $48.36
Now: $45.27
Change: DOWN 6.4%

USB
June 25: $33.39
Now: $31.14
Change: DOWN 6.7%

WB
June 25: $51.91
Now: $48.83
Change: DOWN 5.9%

WFC
June 25: $35.08
Now: $34.57
Change: DOWN 1.5%

As you can see there where some fairly impressive declines over the last month. So…does this mean it might be time to pickup some big US banks? Personally, I think there might be another round of declines. What’s your opinion?

Big US Banks

For those of you considering taking a position in a large US bank here are the yields, payout ratios, current PE and forward PE of some of America’s biggest banks.

C
Yield: 4%
Payout Ratio:48%
PE: 13
Projected 2007 PE: 12

BAC
Yield: 4.47%
Payout Ratio:46%
PE: 10.65
Projected 2007 PE:10.38

JPM
Yield: 3%
Payout Ratio:31.5%
PE: 11.7
Projected 2007 PE: 11.3

USB
Yield: 4.7%
Payout Ratio:55%
PE: 13.1
Projected 2007 PE: 12.76

WB
Yield: 4.14%
Payout Ratio:46%
PE: 11.5
Projected 2007 PE: 10.9

WFC
Yield: 3.1%
Payout Ratio:43%
PE: 14.1
Projected 2007 PE: 13.3

Big Canadian Banks

As promised here are the yields, payout ratios, current PE and forward PE for the big Canadian banks. Tomorrow I’ll do the same for the big US banks.

TD
Yield: 2.9%
Payout Ratio: 46%
PE: 15.7
Projected 2007 PE: 13.1

RY
Yield: 3.2%
Payout Ratio: 45%
PE: 14.1
Projected 2007 PE: 13.5

BNS
Yield: 3.4%
Payout Ratio: 46%
PE: 13.6
Projected 2007 PE: 13.2

CM
Yield: 3.1%
Payout Ratio: 36%
PE: 11.4
Projected 2007 PE: 12.3

BMO
Yield: 4%
Payout Ratio: 57%
PE: 14.4
Projected 2007 PE: 12.3

NA
Yield: 3.9%
Payout Ratio:43%
PE: 11.3
Projected 2007 PE:11.1

Banks Dividend Yields & Payout Ratios

I have seen a number of posts recently comparing the yields of various banks to one another in an attempt to determine the “best buy”. Although, I think that the yield is important I don’t think that the yield by itself is a useful number even for those looking exclusively for dividend income. In my opinion you also need to compare the payout ratio of the banks in order to ascertain if:

1. The dividend is sustainable
2. The dividend has room to grow
3. The business has sufficient excess capital to grow

The payout ratio is a simple ratio that investors can easily calculate.

DIVIDEND PAYOUT RATIO = DIVIDENDS PER SHARE/EARNINGS PER SHARE

In tomorrows post I’ll compile both the yields, payout ratios, current PE and forward PE for the big Canadian banks and on Wednesday I’ll do the same for the big US banks.

Bank Comparison Website - A Middle Class Rant III

I came across this website ( http://www.moneytools.ca ) while doing my daily read at http://www.milliondollarjourney.com. It is an online guide to bank fees created by the Canadian Government. It provides you with the “tools you need to help you shop around for bank accounts, credit cards and other financial products from the comfort of your home.” The site allows you to search for the best product based on: location, minimum balance, age, number of transactions a month etc...

Although the site could be useful for some people I don’t like the fact that the government has gone ahead and wasted time and money on the construction of it (if an individual or business created it then hey no problem). In my opinion it’s really none of the governments business. I think that consumers are smart enough to shop around on their own (and if not then the dumb ones can pay a higher fee and raise the EPS of my bank stocks). Part of my problem with the government poking its’ nose into bank fees has to do with the fact that bank fees really aren’t that high (I bank at a big bank and pay $0 a year in fees). Why is the government wasting time and resources in an effort to save Canadians a few dollars a month at best? Additionally, the type of people who are going to be visiting the site are mainly going to be financially savvy people like you and me who probably don’t pay many fees anyways. Those who pay extravagantly high bank fees probably won’t use the site, because if they’ve been dumb enough to pay high fees up to now and haven’t done anything about it why is this website going to make a difference?

Since when is the government in the business of being a comparison shopper for consumers anyways? What’s next? Restaurants? Hotels? Groceries? Actually, I think that a grocery comparison website would save the average Canadian far more money each year than the bank fee website (I converted a friend from A&P to No-Frills and he now saves about $30 a week in groceries --- for him that’s about 3 years worth of bank fees saved each week). Anyways...my point is the government should stick to governing (defense, infrastructure, health, education) and leave the rest up to the market.