Monday , 30 March 2020

The Absolute Ultimate In Dividend Growth Investing

For dividend growth investors seeking durable investments with excellent track records,Your-key-to-making-Money there is almost nothing to compare to the Big 5 of the Canadian banking sector:

The comments above and below are excerpts from an article from which has been edited ([ ]) and abridged (…) to provide a fast & easy read.

The Royal Bank of Canada (NYSE:RY), Toronto-Dominion (NYSE:TD), Scotiabank (NYSE:BNS), the Bank of Montreal (NYSE:BMO), and the Canadian Imperial Bank of Commerce (NYSE:CM) can measure their dividend records back to 1870, 1857, 1833, 1829, and 1868, respectively, and have sustained these payments without interruption since.

How have these 5 banks managed to be such brilliant dividend stocks for the best part of two centuries? A large part of it is the oligopoly that the Canadian banking sector has become: these 5 banks control approximately 90% of Canada’s banking assets.

  • The sector is stringently regulated, which puts high barriers to entry in the way of potential competitors and ensures the continued dominance of the Big 5.
  • This freedom from intensive competitive pressure (aside from each other) has allowed the Big 5 to become large institutions not just in Canada, but also with significant operations abroad – particularly in the United States.
  • This ensures that the size and quality of the loans that these banks offer to their commercial clients will easily surpass those on offer elsewhere.
  • This size also ensures that the services offered to their customers are such that these customers are less likely to switch banks in the long run.

Currently, all of the Big 5 banks are trading at cheap valuations, and their size (as indicated by market cap), their total assets and their total debt, combined with their payout ratios, all suggest their ability to reward shareholders with healthy dividends for many years to come.

Market Cap 136.99 billion 124.59 billion 91.86 billion 62.75 billion 44.04 billion
P/E Ratio 13.48 14.29 13.13 14.00 10.32
Dividend Yield 3.66% 3.31% 3.92% 3.67% 4.55%
Payout Ratio 47.60% 46.10% 49.60% 49.00% 44.30%
Total Assets 1.18 trillion 1.18 trillion 896.27 billion 687.94 billion 501.36 billion
Total Debt 163.57 billion 92.98 billion 104.72 billion 45.16 billion 17.58 billion
Click to enlarge

All above figures in Canadian dollars.

In summary, any one of the Big 5 banks (or, indeed, all of them) look set to continue providing their shareholders with great rewards for many years to come, and therefore should be seriously considered for inclusion in a long-term portfolio.

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