Recent dividend-growth patterns at the big banks offer some clues about why high-pressure sales tactics at bank branches have been an issue lately.
Some people are willing to forgive, or least indulge, the banks about their sales tactics because bank shares can be relied upon to pay a growing stream of cash via quarterly dividends. Over the past five years, Globeinvestor.com data show the annualized growth rate on bank dividends has ranged from 10.8 per cent at Toronto-Dominion Bank to 4.7 per cent at Bank of Montreal.
Compare the five-year dividend-growth rate to the increase over the past 12 months and you can't help but notice a bit of slippage. Canadian Imperial Bank of Commerce bucks the trend – its dividend payout rose to 7.6 per cent over the past year from an annual rate of 7.1 per cent over the past five years. And BMO's 12-month growth rate came in basically flat – 4.8 per cent in the recent 12 months, compared with 4.7 per cent for the past five years.
Each of the other Big Six banks had a more meaningful dividend growth drop-off in the past 12 months:
- Bank of Nova Scotia’s one-year growth rate was 5.6 per cent, compared to a five-year rate of 6.7 per cent.
- Royal Bank of Canada’s 12-month growth rate was 7.4 per cent, compared to 8.8 per cent annually over the past five years.
- National Bank of Canada’s one-year rate was 3.7 per cent and its five-year rate was 8.4 per cent.
- TD’s one-year growth rate was 9.1 per cent, while its five-year rate was 10.8 per cent.
The big banks may have the most demanding shareholders of any publicly traded companies. These shareholders are hungry for dividend growth, which the banks have all delivered. The average inflation rate over the past five years was 1.4 per cent, a hurdle all the banks have cleared with ease in terms of dividend increases.
The slight slowdown at some banks in dividend growth in the past year highlights the battle to sustain a rising flow of cash payouts to shareholders in a slow-growth economy. This may explain to some extent why we've been hearing from bank tellers and the pressure they're under to sell products. That's one way banks keep their dividends rising.