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moneysense.ca, 13/12/06
Canadian Bank Earnings
Current issue:
The Big Five banks announced their annual earnings in the past two weeks and demonstrated once again how profitable these franchises are. Here’s how the earnings compared with the previous year:
1. Bank of Montreal (TSX: BMO): $5.15 vs. $4.63
2. Royal Bank (TSX: RY): $3.59 vs. $2.57
3. TD Bank (TSX: TD): $4.66 vs. $4.14
4. Bank of Nova Scotia (TSX: BNS): $3.55 vs. $3.15
5. CIBC (TSX: CM): $7.43 vs. -$0.46
Dividends: BMO increased its quarterly dividend by 3¢ or 4.8% to 65¢ per share and now yields 3.77%. Scotiabank hiked the quarterly dividend by 3¢ or 7.7% to 42¢ per share and yields 3.23%. RBC (yield – 2.93%), TD (yield – 2.85%) and CIBC (yield – 2.88%) maintained their dividends.
Links to earnings reports: BMO, Royal Bank, TD Bank, Scotiabank, CIBC.
See also: Bank earnings for the previous quarter.
FD: I own shares in TD and BNS.
moneysense.ca, 13/12/06
I think that the banks are probably going to have a bit of a stock price slump in the next 3-4 months but you still have to love those banks as an investor. I currently own BMO, Royal and BNS and I am looking to get into TD. Currently those three banks make up around 20% of my portfolio and that isn’t including the little bit of them I hold through the iUnits Financial Index ETF (XFN). I was sort of expecting TD to increase their dividend and I think the fact that they didn’t this quarter almost ensures that they will next quarter.
I don’t think any of the banks are screaming buys right now (like CIBC was just one year ago). I have a bit of cash waiting for deployment and would like nothing better than a bank correction but who knows when that is gonna happen.
TD raised the dividend just last quarter, so they might give a small boost next quarter but dividend growth from TD might be muted now that they are in the process of buying BankNorth in the US.
Keep in mind that all of the Big 5 except for BNS have their earnings linked with what’s happening to the US economy. BMO reported that their outlook for the future isn’t quite so bright due to their US exposure (they have already seen some slowdown in the current quarter from their Harris subsidiary).
I have a small position in BMO. I have a much larger holding in MCAN Mortgage (Symbol MKP), Canada’s largest (roughly $800 mil) non-bank mortgage lender, because they offer a better yield (8%) and have a much better P/E ratio (9.7 today) than any of the Big 5 Banks.
One small tip for those who don’t know this – if you look at the top holdings in the Dynamic Venture Opportunities Fund, they hold many of the Big 5 Banks, because the banks bought out some of the small businesses in which they were invested. So, in essence, you get to buy the Big 5 banks AND get a wonderful 30% cash back in your taxes (tax break for LSIFs) on investments up to 5K!!! What’s not to love there? A win-win situation if you ask me.
“…all of the Big 5 except for BNS have their earnings linked with what’s happening to the US economy.”
Why doesn’t BNS have a link like the other Big 5?
BNS doesn’t have a link like the other Big 5 because their US operations aren’t as big. They are more focused on Latin America than the other banks and less focused on the US.
Phil, thanks for the tip on Dynamic Venture Ops fund. I actually own that fund (since 2004) and it had been mostly flat for two years but has really taken off in the last 18 months or so. I bought it at a time when Ontario still gave the tax credit so I got a little more back than you would now and I also did the RSP thing with it so I ended up getting over 40% total back. I was hoping it would just stay flat for the 8 years I have to hold it but the 20% return it has given me in the last 12-18 months or so has been nice. I didn’t understand why they were doing so well lately.
analysts from UBS and Merril Lynch also opined that banks are now fully valued. read it at http://financialsector.blogspot.com
Oxcc, the tax break for LSIFs in Ontario is still good for another couple of years. Check out the press release at:
http://www.fin.gov.on.ca/english/media/2005/nr09-lsif.html
Geena, I agree. I wouldn’t put new money in any of the Big 5 Canadian Banks right now, but I also wouldn’t sell, just in case I’m wrong. In the USA, you can actually buy ADRs (American Depositary Receipts) of many other foreign banks. Some of the banks in the emerging markets (Chile, for example) and Australia are currently paying out some wonderful yields (over 5%).
It is making me ponder about buying up shares of those banks down there, but I’m not 100% sure that holding foreign banks amid the expected downturn in the US Dollar would protect you from that currency fluctuation (in other words, would shares of an Australian bank go up correspondingly if the US dollar devalues? I would guess so, but who knows for sure? I certainly don’t!)