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A pedestrian walks past the head offices of Laurentian Bank in Montreal, March 19, 2013. (CHRISTINNE MUSCHI/REUTERS)
A pedestrian walks past the head offices of Laurentian Bank in Montreal, March 19, 2013. (CHRISTINNE MUSCHI/REUTERS)

Schizas’ Mailbag

Enjoy the dividend while you wait for this bank’s stock to rise Add to ...

Hi Lou,

I e-mailed about a month ago, prior to Laurentian Bank’s quarterly report, asking for your take on this stock as a mid- to long-term investment. Since I have seen nothing posted so far, I am assuming that (a) you receive a lot of requests and haven’t gotten to mine yet, (b) you didn’t see my request due to an overly-active spam server, or (c) you want to take time to think about your response.

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I’m not looking for spectacular gains here, though the longer term charts do show previously higher stock values. I think I see a “base” on the chart, but am not clear why this particular bank receives so little attention, aside from the fact that it is Quebec-based. I would appreciate it if you could shed some light on this stock for me.

Thank you,

Ruth

Hey Ruth,

Thanks for your patience. I think you covered many of the reasons why I might not have gotten to your e-mail as quickly as you might have liked. Laurentian Bank of Canada is the seventh largest bank in Canada with a focus on the province of Quebec. You might want to review your assumption that the company’s concentration in one region of the country is an aside. The investment community constantly makes note of the fact that with only one sandbox to play in, LB has limited opportunities for growth.

Another factor that you have to keep in mind is that household lending is their main profit platform which has seen slowing growth. Finally the company is working its way through a series of acquisitions which have increased integration and operating costs.

A study of the charts will help identify how best to proceed with this opportunity.

The three-year chart supports your observation that the shares had been building a base with support at $43.00 and resistance at $45.00. The shares hit their record high in February of 2011 when they closed at $53.64. There isn’t much resistance after $45.00 and if the company can get a handle on the costs related to its acquisitions that could serve as a catalyst for further gains.

The research conducted on your behalf indicates that LB has been increasing its dividend over the last two years from $0.39 in May of 2011 to $0.50 in the last quarter, producing a yield of 4.41 per cent. The dividend payout ratio in the third quarter reached 55 per cent which reflects the low growth situation that needs attention as well as cost management. There are only two ways to increase profits and increase dividends. Grow revenue while controlling costs or manage slower revenue growth while cutting costs.

The six-month chart depicts the healthy signals generated by the MACD and RSI. The momentum indicators painted a buy in June, a sell in August, and a buy in September. Currently the pattern suggests that there is more gas in the tank.

Given that you don’t have outrageous expectations for capital gains and will be collecting a reasonable dividend you should consider accumulating LB over a long investment horizon.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 
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