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 also had the lowest payout of EPS at 40.40%. The DPR payout expect is in the 40 to 55% level for banks. On this basis all the banks are fine.
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 | Symbol | DPR for EPS | DPR for CFPS |
|---|---|---|---|
| Bank of Montreal | BMO | 46.07% | 23.36% |
| Bank of Nova Scotia | BNS | 52.25% | Neg CF |
| CIBC | CM | 50.04% | 42.65% |
| Royal Bank | RY | 45.71% | 40.72% |
| National Bank | NA | 41.01% | 34.68% |
| TD Bank | TD | 46.24% | 35.88% |
I have started to look at Dividend Payouts compared to Free Cash Flow. The problem I have with checking dividends against Free Cash Flow is that different sites sometimes have different values for FCF. For example, I am currently looking at updating my spreadsheet on AGF Management Inc. The Morningstar report from TD bank gives FCF from 2014 to 2018 as $41,723; $47,698; $49,827; $57.518; and $54.178. The WSJ says $29,879; $37,675; $41,442; $52,060; and $48,006. Maybe next year I will take a second look at this.
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 2019 CIBC has the lowest percentage of their shares issued for stock option purposes at 11%. They also had the lowest book value cost at $52M. Last RY had the lowest percentage at 10% with a book value of $92M. The National Bank has the highest percentage of their shares issued for stock options at 0.88%, however, the highest book value is BNS at $253M.
| Bank | Symbol | Shares | ‘% of Shares | Value $M |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.962 | 0.15% | $62 |
| Bank of Nova Scotia | BNS | 4.111 | 0.34% | $253 |
| CIBC | CM | 0.512 | 0.11% | $52 |
| Royal Bank | RY | 1.900 | 0.13% | $136 |
| National Bank | NA | 2.951 | 0.88% | $122 |
| TD Bank | TD | 2.300 | 0.13% | $124 |
Since I was looking for performance on a long term basis, 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 30 years growth is better than the 5 and 10 years growth. The TD Bank has the best ones over each period, but Royal Bank has the second best. It was the same last year.
| Symbol | 5 Yr. | 10 Yr. | 15 Yr. | 20 Yr. | 25 Yr. | 30 Yr. |
|---|---|---|---|---|---|---|
| BMO | 5.59% | 3.61% | 6.33% | 7.58% | 7.95% | 6.96% |
| BNS | 6.39% | 5.94% | 8.00% | 10.97% | 10.46% | 9.65% |
| CM | 7.28% | 4.87% | 6.43% | 8.01% | 8.93% | 7.61% |
| RY | 6.68% | 7.70% | 8.86% | 10.50% | 11.21% | 9.32% |
| NA | 7.65% | 6.91% | 10.59% | 10.60% | 10.45% | 7.06% |
| TD | 9.45% | 9.01% | 10.13% | 10.98% | 11.50% | 9.75% |
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 and CIBC in the 5 year total return range and BMO in the 15 year range.
| Symbol | 5 Yr. | 10 Yr. | 15 Yr. | 20 Yr. | 25 Yr. | 30 Yr. |
|---|---|---|---|---|---|---|
| BMO | 8.12% | 10.49% | 7.68% | 12.26% | 14.03% | 14.47% |
| BNS | 6.48% | 8.48% | 8.16% | 13.26% | 15.88% | 15.88% |
| CM | 6.42% | 9.80% | 12.42% | 11.01% | 13.57% | 12.44% |
| RY | 8.96% | 9.98% | 12.49% | 14.54% | 16.57% | 13.78% |
| NA | 10.62% | 12.72% | 10.80% | 15.29% | 16.25% | 12.13% |
| TD | 9.43% | 12.20% | 11.08% | 10.07% | 15.83% | 12.89% |
The next thing to cover is how well the banks cover their deposits with assets. In this case, the lower the ratio the better. In this case RY has the lowest and best ratio.
| Bank | Symbol | Deposits Cov. |
|---|---|---|
| Bank of Montreal | BMO | 0.85 |
| Bank of Nova Scotia | BNS | 0.95 |
| CIBC | CM | 0.90 |
| Royal Bank | RY | 0.70 |
| National Bank | NA | 0.80 |
| TD Bank | TD | 0.88 |
The last thing I want to cover how much an investor would earn if they bought shares with $1,000 on December 31, 1988. On this basis, BNS is the winner with total return of $31,568.31. RY is a close second at $31,242.35. CIBC had the lowest total return at $14,912.80 with National Bank close at $17,756.36.
| Symbol | Spent | Shares | Worth | Divs. Pd | Total |
|---|---|---|---|---|---|
| BMO | $1,000.02 | 142.86 | $14,377.43 | $8,294.45 | $22,671.88 |
| BNS | $1,000.02 | 273.23 | $20,041.42 | $11,526.89 | $31,568.31 |
| CM | $1,000.06 | 80.78 | $8,772.71 | $6,140.09 | $14,912.80 |
| RY | $1,000.03 | 211.87 | $21,769.64 | $9,472.71 | $31,242.35 |
| NA | $1,000.04 | 173.92 | $12,536.15 | $5,220.21 | $17,756.36 |
| TD | $1,000.00 | 224.72 | $16,366.36 | $6,734.50 | $23,100.86 |
On my other blog I wrote yesterday about Enghouse Systems Ltd (TSX-ENGH, OTC-EGHSF) ... learn more. Next, I will write about Shaw Communications Inc (TSX-SJR.B, NYSE-SJR) ... learn more on January 29, 2020 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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