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. It therefore 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 the world’s eleventh-largest 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 has emerged as one of the world’s finest. Canadian banks have been ranked among the world’s soundest for nearly a decade straight by the World Economic Forum. 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 2009 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.
For the U.S. version of the 100-year dividend club, click here.
1. Bank of Montreal (BMO ): Dividend Payer Since 1829
The Bank of Montreal has paid out dividends every year since 1829 – a stretch of 188 consecutive years. BMO is Canada’s fourth-largest bank by market capitalization, and as of 2016 had nearly $690 billion in total assets. The company’s policy is to maintain a dividend payout ratio 40% and 50%.
Through strategic investments and supporting anticipated business growth, BMO has kept dividend payouts steady in the face of recession and cyclical markets.
U.S. banking has contributed strongly to BMO’s growth in recent years. By 2016, nearly one-quarter of the bank’s net income came from its U.S. banking segment. BMO has increased its U.S. footprint since 2010, when it acquired 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 paid out dividends throughout its 185-year history. The company’s policy of relating dividends to trend earnings has allowed it to grow its yield in 43 of the last 45 years. The bank ranks third in Canada by market cap at more than $96 billion.
The bank has achieved steady dividend growth over the past ten years 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. The company’s annual payout has held above $2.00 since 2011.
The bank has a global presence with only 59% of its assets based in Canada. The company’s U.S. operations account for 14% of its assets, according to its 2016 Annual Report. However, only 6% of its $7.4 billion in net income came from its U.S. operations. North America is expected to drive the bulk of the company’s growth in the future. Scotiabank’s expansion into international markets and its strong presence in the domestic arena will 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. With a market cap of around $120 billion, TD is second only to RBC in terms of absolute size. Since 1857 – a span of 160 years – the stock has paid out dividends. As one of the world’s biggest banks, TD has managed to achieve steady revenue and earnings growth over the past decade despite the 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. In fact, as of 2016, the bank’s U.S. retail operations had more deposits than their Canadian counterparts. TD ranks sixth in North America in total assets, total deposits and market capitalization. In Q2 2016, nearly one-third of its overall adjusted earnings came from its U.S. retail segment.
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 takes the fourth spot on our list with 149 years of consecutive payouts. In terms of market capitalization, it is ranked number five in Canada. The bank has been prudent in its dividend history, and has kept payouts steady during the last two major financial crises (2000 and 2008). 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 years past. The company recently laid out a plan for U.S. expansion, including a $4 billion takeover of PrivateBancorp Inc. (PVTD ). Once the deal is finalized, U.S. banking is expected to contribute 10% or more to CIBC’s consolidated income in the short term.
5. Royal Bank of Canada (RY ): Dividend Payer Since 1870
Canada’s biggest bank by market cap takes the number five spot on our dividend payer list. RBC has paid dividends in 147 of its 153-year history. The company’s dividend history for common shares shows steady growth since the turn of the century. Dividend payouts 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. It routinely ranks among the highest in the world in terms of credit rating, and has a solid capital position. 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.
Roughly one-fifth of RBC’s revenue comes from the United States, where it has become the preferred partner to corporate, institutional and high net-worth clientele.
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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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