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Royal Bank of Canada (MARK BLINCH/REUTERS)
Royal Bank of Canada (MARK BLINCH/REUTERS)

RBC, Scotiabank upgraded on dividend hopes Add to ...

As Canadian banks head into first-quarter reporting season, Toronto-Dominion Bank is the early favourite to boost its dividend.

Investors can be “reasonably assured” of a payout increase by TD, and possibly a couple of other banks, Barclays Capital analyst John Aiken said Monday in a report. Royal Bank of Canada and Bank of Bank of Nova Scotia could boost their dividends too, but it is not as certain “given higher relative payout ratios,” he added.

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“While we do not forecast a dividend increase for Canadian Imperial Bank of Commerce, it is a possibility,” he said. “Given our estimates and Bank of Montreal’s current payout ratio, we do not believe an increase is likely for BMO.”

National Bank of Canada and TD have been the most consistent in raising dividends, each announcing an increase on alternating quarters for more than the past two years. Royal Bank and Scotiabank have been the less consistent, but have attempted to maintain pace with the other two through 2012, the analyst wrote. “With National Bank raising its dividend last quarter, it is unlikely to do so again, sequentially.”

With Canadian banks now trading under 2 per cent below their 52-week highs on average, there is a possibility of a pullback. “This [recent rally] creates some measure of valuation risk, given our expectations that revenues are likely to face some headwinds including slowing volume growth, continued margin compression and weaker contribution from capital markets activity,” Mr. Aiken suggested. “Canadian bank valuations have benefited from the sustainability and recent growth of their dividends.”

Upside: The analyst raised his target by $3 a share to $61 for RBC; $3 a share to $58 for Scotiabank and $1 a share to $61 for BMO. TD’s target remains unchanged at $87 a share; CIBC at $81 and National Bank at $82.

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Norbord Inc.

RBC Dominion Securities Inc. analyst Paul Quinn raised his target price on the wood panel manufacturer based on higher forecast prices for oriented strand board (OSB), and a “solid recovery in the U.S. housing market.”

Upside: He increased his target by $4 a share to $40, and maintained his “outperform” rating.

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IGM Financial Inc.

Canaccord Genuity Corp. analyst Scott Chan boosted his target on the fund giant (owner of Investors Group and Mackenzie Financial) on a modestly higher sales forecast for 2013. While IGM reported total net redemptions of nearly $1.3-billion for the fourth quarter, its Investors Group unit is off to a “good start” with $450-million in net sales forecast for the first quarter, he said.

Upside: He raised his target by $2 a share to $46, but maintained his “hold” rating.

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San Gold Corp.

The gold miner should trade at discount to its peers given expectations for “low-margin production and negative free cash flow generation over the next 12 months,” said TD Securities analyst Daniel Earle. External funding will likely be required to complete a planned two-year development program at the Rice Lake mining complex.

Downside: He reduced his target to 60 cents a share from $1.10, and maintained his “hold” rating.

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Teck Resources Ltd.

Despite better-than-expected fourth-quarter results, Canaccord Genuity analyst Orest Wowkodaw cut his target on the miner because of “disappointing” 2013 operating guidance for coal and copper production. The ongoing weakness in seaborne coking coal is likely to persist until mid-2013, he said.

Downside: The analyst, who maintained his “hold” rating, lowered his target by $4 a share to $35.

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