Canadian Banks Could Raise Payouts 18% While Buying Back Stock
(Bloomberg) -- Canada’s six biggest banks could raise their dividends by about 18% on average and still be able to buy back almost 2% of their shares now that regulators are allowing them to unleash capital they’d stockpiled during the pandemic.
National Bank of Canada and Bank of Montreal would have the largest percentage increases in their dividends, assuming they return their payout ratios to the typical pre-pandemic level of 45% of earnings, according to an analysis from Bloomberg Intelligence. Only Bank of Nova Scotia wouldn’t be projected to increase its dividend under that model, though it’s more likely the lender would allow its payout ratio to move toward the higher end of its targeted range rather than cut its dividend, said Bloomberg Intelligence analyst Paul Gulberg.
|Bank||Current Dividend||Dividend at 45% Payout Ratio|
(millions of shares)
|% of Shares|
|Royal Bank of Canada||C$1.08||C$1.25||16%||24.0||1.7%|
|Bank of Nova Scotia||C$0.90||C$0.89||-1%||23.3||1.9%|
|Bank of Montreal||C$1.06||C$1.40||32%||11.8||1.8%|
|Canadian Imperial Bank of Commerce||C$1.46||C$1.61||10%||8.6||1.9%|
|National Bank of Canada||C$0.71||C$1.00||41%||5.8||1.7%|
Even after increasing their dividends, the banks still would have the capacity to buy back almost 2% of their shares, assuming they move their total capital returns to pre-pandemic levels of about 65% of earnings, according to Bloomberg Intelligence. Scotiabank and Canadian Imperial Bank of Commerce would be poised to buy back the largest percentage of their shares under those assumptions, according to the analysis.
Canada’s Office of the Superintendent of Financial Institutions on Thursday allowed the country’s banks and large insurers to resume dividend increases and share buybacks, undoing measures put in place in March 2020 to protect the financial system during the early days of the pandemic. OSFI head Peter Routledge said the banks had weathered the Covid-19 shock well and that the virus now appears to be more of an endemic issue that the country’s economy is capable of withstanding.
Manulife Financial Corp., a life insurer that was subject to the restrictions, on Friday announced a supplementary 5-cent-a-share dividend on its common stock, in addition to its quarterly payout of 28 cents a share. The firm also said it plans to start a buyback program that could repurchase as many as 39 million shares, or about 2% of its outstanding stock.
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