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Canadian banks set to hike dividends: analyst

For small businesses, the banking system fails to impress


Several Canadian banks are expected to hike their dividends when they report third-quarter results in a few weeks, despite challenging market conditions, says TD Securities analyst Jason Bilodeau.

"We expect to see dividend hikes from CIBC (+3.3 per cent), Royal Bank (+3.5 per cent), TD Bank (+2.8 per cent) and possibly BMO (+4.3 per cent)," Mr. Bilodeau said Wednesday in a report. The third quarter concluded at the end of July.

Stock markets continued to suffer because of broader macro concerns [including Europe's debt crisis] over the past three months, and "we believe there is limited cause for optimism that a convincing solution is on the near-term horizon," he added.

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Against that backdrop, Canadian banks "continued to offer reasonable relative performance although absolute returns have been disappointing," he wrote. "Conditions remain challenging, but in our view, the operating businesses are fundamentally sound and still growing."

The analyst said he is making incremental cuts to his second-half estimates for this year to reflect "persistently difficult capital markets conditions," and more conservative loan-growth estimates for the coming quarters. "Margins are likely to remain under incremental pressure," he added.

"We continue to believe that it is best to own the highest-quality growth stories in the group, which are TD Bank and Scotiabank," he said. "These names should be able to post relatively good growth in the expected slower environment, and be able to manage any potential worsening conditions better than most...

"While further out the risk curve relative to our preferred names, we continue to see opportunity in CIBC at these levels," he said. "We have downgraded Laurentian Bank to hold from buy following a period of strong relative performance."

Mr. Bilodeau is not making changes to his target prices, but is suggesting "some 20 to 30 per cent total return on average across the group over the coming 12 months."

Upside: He maintains an "action list buy" rating on Bank of Nova Scotia with a one-year target of $66 a share. He has a "buy" on TD Bank and CIBC, with respective targets of $95 and $90 a share.


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Canam Group Inc.

Raymond James analyst Frederic Bastien upgraded the construction products maker to "outperform" after it reported improved second-quarter results. The gradual improvement in its backlog, top-line, margins and financial position should be maintained for the rest of this year and 2013, he said.

Upside: He also raised his one-year target to $7 a share from $5.50.


Open Text Corp.

Versant Partners analyst Tom Liston cut his target price on the enterprise software company ahead of the fourth-quarter earnings. "We are cautious going into the quarter given the disappointing results in the third quarter," he said. "Open Text is facing company-specific sales execution issues."

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Downside: He maintains a "neutral" rating, but cut his one-year target by $2 a share to $60.


Brookfield Real Estate Services Inc.

The company, which operates under brands like Royal LePage, is considering potential structural changes "which we believe could include internalizing management," said CIBC World Markets analyst Brad Sturges. The company will provide details on changes in the coming months.

Downside: He cut his one-year target to $13.75 a share from $15, and maintains a "sector performer" rating.


Walt Disney Co.

The media and theme park company, which reported strong third-quarter results, "is firing harder on all four cylinders," said RBC Dominion Securities analyst David Bank. The robust studio pipeline from its Marvel's franchises and Pixar's sequels also provide "solid tentpole visibility over the next few years," he added.

Upside: The analyst, who maintains an "outperform" rating, raised his one-year target by $1 (U.S.) a share to $53.

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