Nichola Saminather

TORONTO (Reuters] – Canada’s six largest banks will soon resume increasing dividends and buybacks following nearly two years of hiatus. They are also expected to report strong quarterly results this week. This could increase the sector’s appeal for yield-hungry investors, even though stocks continue to trade at all-time highs.

Also, the market will look for signs on how banks expect to increase their expenses in next year due to wage pressures increasing and long-awaited improvement in net interest margins with rising interest rates.

According to Reuters calculations, dividend yields for the “big six” Canadian banks – Royal Bank of Canada; Toronto-Dominion Bank; Bank of Nova Scotia, Bank of Montreal, Bank of Nova Scotia, Bank of Nova Scotia, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada (OTC), – average 3.3%.

This compares to the 2.5% global sector median, as per Refinitiv data.

Dividend increases will be the first in the country since March 2020 when the financial regulator in the country imposed a moratorium that was lifted in April. They could vary from 10% for Scotiabank (lower end) to 34% National Bank. Gabriel Dechaine, an analyst with National Bank Financial wrote in a Nov. 22, note that described the coming hikes in terms of “dividend Growth tsunami.”

Expect the banks to announce an average of around 2% repurchases.

Steve Belisle is portfolio manager for Manulife Investment Management. “It will be a substantial (dividend), increase and help them reduce excess capital from their balance sheets,” he said. This will result in a higher ROE (return-on-equity).

Canadian bank shares are still at record heights despite the lack of higher dividends and buybacks. This is due in part to better-than-expected earnings resulting from the release reserve funds that were set aside for loan losses.

LOAN GROWTH ACCELERATION

Canadian banks are expected to report fourth-quarter earnings. Scotiabank will kick off on Tuesday.

An analyst projects that adjusted earnings for top six lenders will rise 37% compared to the prior year. This is due to an increase in business lending, credit card lending, mortgage growth and ongoing reserve releases.

Expect a rapid increase in loan growth, since savings made during the COVID-19 Pandemic have increased consumers’ and business’ buying power at higher prices. The wider economic recovery has added fuel to the fire. Philip Petursson is chief investment strategist at IG Wealth Management.

One stumbling block may be non-interest expense. These expenses could rise 1% over the previous quarter. Variable compensation is a large driver of this expected increase. They will also go up 4% for fiscal 2022 due to continued investment in technology and rising labor costs, CIBC Capital Markets analysts stated in a note.

Some analysts believe that the earnings from capital market earnings may also drop, but higher trading revenues than anticipated could compensate for lower investment banking fees.

Analysts expect profits to drop 6.6% from the previous quarter. This is largely because of releases of reserves. These are hard to predict and have led to better-than-expected results previously. They could also lead to more positive surprises in future periods.

Dechaine, National Bank, stated that the banks are showing positive signs with their revenue growth and strong capital position. He also said they expect equity returns to stay in the teens for longer periods of time.

Petursson indicated that the growth in wealth and asset management units is likely to continue as more people deploy their cash accumulations from during the pandemic.

“It’s hard to imagine where the warts will be on banks’ earnings,” said he.