National Bank (NA)
NA’s results were ahead of expectations, with EPS of $1.48 vs. Analyst estimates of $1.40. Stronger than expected wholesale revenues accounted for most of the upside, with results from most other divisions coming in relatively in-line.
Retail revenue growth remained weak, with growth of only 2% versus 8-9% for the major leaders in retail. National Bank also maintained its dividend at current levels, while analysts expected a moderate increase based on the company’s target payout ratio.
The bank did not quantify the financial impact of purchasing the third-party Asset Backed Commercial Paper (ABCP), stating that there is not sufficient information to value the underlying assets and the proposed restructuring deal could materially affect the value of ABCPs.
Canadian analysts looking for dividend growth continue to favor Canadian life insurance companies and most other banks over National Bank due to its slower expected retail earnings growth, uncertainty related to the ABCP challenges and greater reliance on the wholesale markets for total income.
CIBC reported EPS of $2.34, beating the analysts estimate of $1.90 and consensus of $1.93. The upside was primarily driven by merchant banking gains, which added $0.23 to EPS. Retail banking trends were encouraging, with domestic revenue growth of 4% and market share gains for both mortgages and deposits.
CIBC also increased its dividend by $0.10 to $0.87 per share, slightly less than the analysts expectation of $0.13.
The bank also disclosed approximately $90 million in further CDO and RMBS markdowns in August, which Analysts estimate should pressure earnings in Q4 by approximately $0.18.
Most Canadian analysts believe that CIBC gives investors the potential for further material increases in dividends, lower exposure to wholesale income and deteriorating business credit quality, tight expense management, and a current 0.5x P/E multiple discount against the industry average.
Here at Dividend Money, we believe that material increases in dividend rate are critical to our strategy of growing passive income by investing in companies that are dedicated to passing tangible benefits back to the investor and continuously creating additional shareholder value.
Therefore, we see CIBC (CM) as a potential candidate for a dividend growth portfolio.
Disclosure: The author owns shares of both stocks mentioned