Canada’s big banks are a good proxy for the national economic temperature.
They’re tied into every aspect of Canadian financial life, lending in all industrial and commercial sectors and to consumers at all ages and stages. Their shares are widely held and can be found in pretty well every pension and retirement fund.
The big banks have all reported first-quarter profits in the last week, with the exception of Scotiabank, which reports Tuesday. What they indicate is that things are challenging, but by no means hopeless.
It’s true that a year into the collapse of mineral and energy prices, all of them are setting aside more money for losses on loans. But overall, Canadian operations are doing better than many expected and diversification outside of Canada is paying off.
Two of the five banks — CIBC and TD Bank — have raised their dividends, the biggest indication of their confidence in the rest of the year. RBC banking analyst Darko Mihelic expects Scotiabank to join them Tuesday.
CIBC is the smallest of the Big 5, and the most domestically focused. TD is the second-biggest and has been given a boost by its operations in the U.S., where it has more branches than it does in Canada. Scotiabank is the most international of the bunch and has big investments in Latin America, where a younger demographic tilts towards borrowing, lending and consumption.
While one quarter doesn’t make a year, a dividend boost in February sends a pretty strong message. Later this week, economic data may help sharpen the picture about what lies ahead.
Canada’s fourth-quarter GDP is expected to show no growth for our economy, but that’s no surprise. Of more interest will be a sense of what happened in January, which began by rattling everyone’s nerves.
Here’s a closer look at bank results. The dividend yields are based on Monday’s opening prices.
CIBC: Profit rose 6 per cent to $982 million. Retail lending and business banking were strong. CIBC increased its dividend for the sixth consecutive quarter. It yields 5.1 per cent.
TD Bank: The bank also benefits from its investment in online brokerage TD Ameritrade. Its first-quarter profit rose 8 per cent to $2.2 billion. Like CIBC, it set aside more money for bad loans, but still increased its dividend 8 per cent to 55 cents a quarter. The shares yield 3.89 per cent.
Bank of Montreal: BMO has 500 branches in the U.S. and benefited from a stronger greenback. Its $1.2 billion profit was 13 per cent higher than a year ago. BMO last raised its quarterly dividend in December to 84 cents. It yields 4.5 per cent.
Royal Bank: Canada’s biggest bank lends the most in western Canada. While 2015 saw a record $10 billion profit with two dividend increases, first-quarter earnings were flat after setting aside money for bad loans. Its 81 cent dividend yields 4.73 per cent.
National Bank: The smaller bank saw profits fall because of the writedown of an investment in a financial services company in Germany. Excluding that, National says profit would have been 4 per cent higher. Its 54 cent dividend yields 5.91 per cent.
Plenty of household names have come and gone over the years — Campeau, Eaton’s, Nortel and Stelco are just a few — but the big banks have managed to survive and prosper.
They pay dividends in good times and bad, tend to increase their payout every year, and have yields that are among the best out there. BMO likes to point out that it has paid a continuous dividend since 1829.
In challenging times, the banks are still a good investment, with a dividend stream that offers a far more reliable return than their savings accounts.