National Bank of Canada's Increased Dividend May Placate Investor Concerns

National Bank of Canada’s first quarterly dividend increase in about three years may placate investors looking for dividend growth at other Canadian lenders, analysts said. The stock had its biggest gain in three months.

The Montreal-based bank lifted its dividend by 4 cents, or 6.5 percent, to 66 cents a share, according to a statement yesterday after markets closed. It was the first increase in two years for any of Canada’s six main banks.

“With ‘dividend fever’ seemingly once again taking hold of the (National) quote in recent days, the market should be placated” by the increase, said Sumit Malhotra, an analyst at Macquarie Capital Markets in Toronto.

The dividend was raised after fourth-quarter profit topped analysts’ estimates. Net income for the period ended Oct. 31 climbed to C$287 million ($280 million), or C$1.66 a share, from C$241 million, or C$1.39, a year earlier. National, the first lender to report fourth-quarter results, was forecast to earn C$1.57 a share, based on a Bloomberg survey of eight analysts.

National Bank’s increase surpassed the Bloomberg Dividend Forecast of 64 cents a share. The forecast is based on company guidance, analysts’ estimates and other factors. Other Canadian lenders may raise their payouts this quarter or next year, after the country’s financial-services regulator in September told banks they no longer need “increased conservatism” in capital management.

Leading Edge

“We need one or two quarters of clarity with regards to the final stages of” new capital rules by the Basel Committee on Banking Supervision, National Bank Chief Financial Officer Patricia Curadeau-Grou said today in a telephone interview. “We should be in a better position then to give you some indication in regards to further dividend increases.”

National Bank rose C$1.98, or 2.9 percent, to C$69.82 at 4 p.m. in trading on the Toronto Stock Exchange, the biggest gain since Aug. 27. Other bank shares also rose.

Before one-time items, National Bank earned C$1.63 a share, topping the C$1.55-a-share average estimate of 12 analysts surveyed by Bloomberg news. Revenue was little changed at almost C$1.1 billion.

The results include a C$15 million charge for severance pay in the investment-banking unit, where profit fell 29 percent to C$104 million. National Bank is “repositioning” its investment bank to target equity sales in industries such as energy and mining. The move included cutting about 35 jobs.

Cost Control

“There’s a renewed focus for all the markets where we are participating,” Curadeau-Grou said. “The intent here was to be prudent and impose some kind of a cost control in terms of our strategic management.”

The changes at National Bank Financial aren’t related to any pending acquisition, Ricardo Pascoe, executive vice president of the financial markets unit, told investors on a conference call today.

Personal and commercial banking profit rose 34 percent to C$145 million as loans rose, while wealth-management earnings climbed 19 percent to C$31 million. For the year, National Bank earned a record profit of C$1.03 billion, up 21 percent from C$854 million in fiscal 2009.

Other Banks

“Based on this result, the market will raise its expectations for all banks, (Royal Bank of Canada) in particular,” Cormark Securities analyst Darko Mihelic said today in a note to investors.

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are scheduled to report results tomorrow, followed by Royal Bank of Canada and Bank of Nova Scotia on Dec. 3. Bank of Montreal and Canadian Western Bank release results Dec. 7 and Laurentian Bank reports Dec. 8.

To contact the reporters on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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