Income investors are constantly on the prowl for reliable dividend payers. North of the border, Canada’s vibrant banking sector offers a bedrock of stability, growth and consistent yield. Therefore, it comes as no surprise that Canada’s top five banks have also paid a dividend for more than 100 years running.
Consistency and longevity are the hallmarks of dividend investing. As the global financial markets enter a prolonged period of instability, these factors have assumed greater importance for investors looking to grow their portfolios during uncertain times. If consistency and longevity are what you’re looking for, Canada’s banking sector is a great place to park your investment funds.
Record profitability, a growing international presence and more than 100 years of consistent dividend payments make Canada’s top five banks among the most consistent dividend plays on the market.
The Canadian Economy: An Overview
Our friendly neighbor to the north is more than just a frozen giant. It is home to a diversified economy and a vibrant consumer-driven market that is fertile ground for banks and other lending institutions. Canada’s economy is heavily exposed to the U.S., with roughly three-quarters of its exports America-bound.
Canada’s banking sector is a source of wealth and stability for the economy. A streamlined business model, prudential lending guidelines and a modern regulatory system make Canada a world-class banking hub. Ottawa’s Bank Act, which is reviewed and updated in five-year increments, ensures that regulatory standards keep pace with the industry’s evolution.
U.S. investors are often nearsighted when it comes to portfolio building, as foreign stocks appear blurry and out of focus. When it comes to dividend growth, paying attention to what’s happening outside our borders is critical to long-term success. Luckily, Canada’s banking giants make it easier to identify and snatch up top dividend plays in relatively short order.
Below are five Canadian banks that have paid a dividend for more than a century. They are ranked by longevity. A combination of stability, creditworthiness and steady international expansion have made these institutions exceptional dividend plays that have withstood recession and cyclical market downtrends. During the 2008-09 financial crisis, no Canadian bank required a bailout. As Canada’s banking system consolidated after the financial crisis, these five companies emerged as the undisputed leaders. The expression ‘the cream rises to the top’ definitely applies to the Canadian banking system, which has very little competition outside these five industry stalwarts.
Each of the five banks listed below has enjoyed dividend growth for more than 100 years.
For the U.S. version of the 100-year dividend club, click here.
1. Bank of Montreal (BMO ): Dividend Payer Since 1829
As one of Canada’s largest financial institutions, the Bank of Montreal also happens to be a preeminent dividend payer that has withstood the test of time. This is rooted in the company’s policy of maintaining a dividend payout ratio of 40% to 50%.
Through strategic investments and supporting anticipated business growth, BMO has kept dividend payouts steady in the face of recessions and cyclical markets. This makes it one of the most investor-friendly dividend stocks in Canada’s financial services sector.
BMO has identified global expansion as one of its strategic priorities, with emerging and advanced markets the targets of those efforts. The bank has also zeroed in on U.S. expansion by adding advisory firms, credit card companies and wealth managers under its umbrella. Strategic acquisitions continued to be a staple of the bank’s growth efforts following the financial crisis, leading to the 2010 takeover of Marshall & Ilsley Corporation for $4.1 billion.
2. Bank of Nova Scotia (BNS ): Dividend Payer Since 1832
The Halifax-based Bank of Nova Scotia (also known as Scotiabank) has been a consistent dividend payer throughout much of its history. The company’s policy of relating dividends to trend earnings has allowed it to grow its yield in the face of market corrections, cyclical downtrends and even during recessions.
The bank has achieved steady dividend growth while maintaining a conservative payout ratio. Like other financial services companies, Scotiabank’s dividends experienced a brief slide in the wake of the 2008 financial crisis before rebounding at an even quicker pace between 2010 and 2012.
When it comes to Canadian banks, Scotiabank stands out for its strong international presence. The company holds significant assets abroad, including a strong and growing presence in Latin America. Scotiabank’s international focus has allowed it to diversify its business and unlock growth in emerging markets including Latin America and the Caribbean. Growth in these regions is fueling further expansion interest as the bank looks to maintain a competitive edge that extends beyond its core market. Already, more than one-fifth of the bank’s commercial lending portfolio is based in Latin America and the Caribbean – not far behind Asia at nearly one-third.
Scotiabank’s expansion into international markets and its strong presence in the domestic arena is likely to ensure it remains a strong dividend play for years to come.
3. Toronto-Dominion Bank (TD ): Dividend Payer Since 1857
When it comes to Canada’s banking scene, TD is a behemoth. The bank has achieved strong market penetration and a growing presence south of the border, which has allowed it to maintain an assertive dividend policy. As one of the world’s biggest banks, TD has managed to achieve steady revenue and earnings growth in the wake of the 2008 financial crisis. This has allowed it to maintain steady dividend payouts, while also providing the option of a dividend reinvestment plan.
TD operates a large U.S. retail segment focused on consumer and commercial banking. Its U.S. retail operations have expanded in recent years to make it one of North America’s largest financial institutions. The bank’s U.S. expansion has been driven in large part by acquisitions, especially in the Northeast, where it maintains a large presence.
Find out TD’s complete dividend history here.
4. Canadian Imperial Bank of Commerce (CM ): Dividend Payer Since 1868
In terms of dividend longevity, CIBC ranks near the top of Canada’s banking sector. Not only is CIBC one of Canada’s most prominent retail banks, it has also been prudent in its dividend history. This includes keeping its payouts steady during the 2000 and 2008 financial crises. Beyond that, quarterly dividend yields have steadily increased.
CIBC only recently re-entered the U.S. market in search of growth following a series of costly missteps in past years. This came to a head in May 2017 when investors of Chicago-based PrivateBancorp Inc. (PVTD ) approved CIBC’s $4.9 billion takeover.
CIBC’s plan for U.S. expansion will allow it to accelerate its client-focused strategy south of the border. The bank expects its U.S. business to account for a growing share of its net income in the long term, a sign the company is prepared to diversify its business outside Canada. Successful expansion in the U.S. will also enable CIBC to boost its dividend going forward. The company is enjoying a strong performance in its business banking, wealth management and capital markets divisions. Growth in these areas, further supplemented by U.S. expansion, can ensure the continuation of sizable dividend gains in the future.
5. Royal Bank of Canada (RY ): Dividend Payer Since 1870
Rounding out our top five list is RBC, one of Canada’s most prominent banks. RBC has paid dividends for the vast majority of its history. The company’s dividend history for common shares shows steady growth since the turn of the century. Dividend payouts for common shares remained stable at 50 cents per share throughout the financial crisis.
RBC’s strong dividend history is underpinned by its record of prudent risk and cost management. The bank has earned a reputation for its solid capital position, which has allowed it to remain resilient in the face of cyclical markets. The company also has a long history of innovation with a proven track record of adapting to industry trends, making it well suited to navigate complex market environments.
RBC generates significant revenue from the U.S, where it has become the preferred partner to corporate, institutional and high-net-worth clientele. The company inked a $5 billion acquisition of Los Angeles–based City National back in 2015. Within a year’s time, this division grew its asset base by more than 20%, and it is likely to become a major profit generator for the bank over the next three years.
This strategic acquisition gives RBC inroads into relationships and markets it has struggled to attain in the past. The success of the City National acquisition enables RBC to expand its U.S. operations in the future. The company has eyed a combination of strategic acquisitions and organic growth to accomplish that.
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Premium members can track Canada’s largest banks using the Dividend.com DARS system, a proprietary model for evaluating stocks. The DARS system can be used to track all foreign dividend stocks. Dividend investors interested in looking to the future should also explore “10 Companies That Are Likely to Be Dividend Aristocrats by 2050”.
The Bottom Line
A history of stability, consistency and regulatory certainty suggests Canada’s top five banks will continue to thrive. As the Canadian banking industry continues to consolidate, these five players will remain the undisputed leaders. Dividend investors have plenty to gain from these northern champions.
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