Thursday, February 28, 2019

Banks and Other Things

For dividend paying stocks, the Dividend Payout Ratios are important. For the DPRs, lower ratios are better ratios. For Banks the DPR for EPS is the most important one. When looking at these ratios, it would appear that Nation Bank has the best one, which is the lowest one. However, last year the National Bank had the highest at 65%. The DPR payout expect is in the 40 to 55% level.

The problem with cash flow is that for banks they tend to be volatile and often negative. A lot of analysts ignore the Cash Flow of banks.

Bank 2018 Symbol DPR for EPS DPR for CFPS
Bank of Montreal BMO 45.53% 47.75%
Bank of Nova Scotia BNS 48.09% 22.60%
CIBC CM 45.67% 23.88%
Royal Bank RY 44.26% 30.47%
National Bank NA 40.40% 13.71%
TD Bank TD 43.43% 83.92%

When Shares are issued for Stock Options, you want a company that issues around the same relative number of shares for its industry. Of course, the lower the number of shares issued for stock options, the less money comes out of the earnings for shareholders. In the value column, I am putting in the book value of the stock options at the end of the calendar year.

In 2018 RY has one of the lowest percentages of their shares issued for stock options purposes. Last year CIBC has the lowest percentage. RY options also had the lowest book value cost when it came to the cost of these stock options. For 2018 NB has the highest percentage of their shares issued for stock purposes and TD the highest cost.

Bank 2018 Symbol Shares ‘% of Shares Value $M
Bank of Montreal BMO 1.513 0.24% $99
Bank of Nova Scotia BNS 2.238 0.18% $135
CIBC CM 1.000 0.23% $95
Royal Bank RY 1.466 0.10% $92
National Bank NA 3.130 0.93% $128
TD Bank TD 2.900 0.16% $152

Since I was looking for performance on a long term basis this year, I want to include the dividend growth and total return for the 6 banks that I cover.

Below is a chart showing the long term growth of dividends for these banks. Certainly, in most cases the 15 to 25 years growth is better than the 5 and 10 years growth. The TD Bank has the best ones over each period, but Royal Bank is not far behind.

Bank 2018 Symbol 5 Yr 10 Yr 15 Yr 20 Yr 25 Yr
Bank of Montreal BMO 4.96% 2.88% 7.04% 7.47% 7.91%
Bank of Nova Scotia BNS 6.54% 5.50% 9.51% 11.09% 10.34%
CIBC CM 6.96% 4.34% 8.16% 7.73% 8.71%
Royal Bank RY 7.27% 6.96% 9.46% 11.19% 10.98%
National Bank NA 7.65% 6.91% 10.59% 10.60% 10.45%
TD Bank TD 10.01% 8.26% 10.55% 10.89% 11.05%

The other thing I looked at was long term total return. This is calculated from December to December. It will include both capital gains and dividends. It is a compound growth rate per year. Here I am looking for total return of 8% or more. Mostly the banks did that but with a few exceptions like BNS in the 5 year total return range.

Bank 2018 Symbol 5 Yr 10 Yr 15 Yr 20 Yr 25 Yr
Bank of Montreal BMO 9.05% 17.56% 7.51% 9.71% 12.89%
Bank of Nova Scotia BNS 4.78% 12.79% 9.43% 11.84% 14.17%
CIBC CM 7.19% 13.04% 7.62% 9.67% 13.10%
Royal Bank RY 9.55% 14.77% 11.96% 12.27% 15.60%
National Bank NA 10.44% 20.52% 11.02% 12.07% 14.54%
TD Bank TD 10.12% 16.85% 11.87% 12.08% 18.72%

The last thing to cover is how well the banks cover their deposits with assets. BNS has an abnormally high coverage this year. For them the coverage was in the 0.90 range for other years.

Bank 2018 Symbol Deposits Cov
Bank of Montreal BMO 0.91
Bank of Nova Scotia BNS 0.41
CIBC CM 0.89
Royal Bank RY 0.72
National Bank NA 0.75
TD Bank TD 0.85

On my other blog I wrote yesterday about Home Capital Group (TSX-HCG, OTC-HMCBF) ... learn more. Next, I will write about Bombardier Inc. (TSX-BBD.B, OTC-BDRBF) ... learn more on Friday, March 1, 2019 around 5 pm.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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