Skip to main content

RBC Bank on Bay Street, Toronto. August 2, 2013.

Gloria Nieto/The Globe and Mail

As a personal finance columnist who must be unbiased, I don't invest in the shares of the banks I often write about.

Am I missing out on the benefits of owning financial stocks? No way. I simply use an exchange-traded fund that covers the entire sector, the iShares S&P/TSX Capped Financials Index Fund. If I were to buy individual bank shares, I know exactly how I'd choose from among the many ways to slice and dice these stocks. Only one criteria really matters to me – dividend growth.

Consistent dividend increases are a sign of reliable earnings and confidence in the future. Bank stocks were the gold standard for dividend growth until the global financial crisis hit. No dividends were cut, but growth was halted until 2010. Now, as the most recent round of bank earnings show, the banks are back in action as dividend growers. As fiscal first-quarter earnings were reported in late February, Canadian Imperial Bank of Commerce, Royal Bank and Toronto-Dominion Bank came through with dividend hikes. Who has the best record over the past few years? Let's consult some research by Richardson GMP's analysts.

Story continues below advertisement

TD, National Bank of Canada and RBC come out on top, according to Richardson. Each has been announcing semi-annual dividend increases, as they did before the financial crisis. Elsewhere, Bank of Nova Scotia ranked mid-pack on dividend growth, while Canadian Imperial Bank of Commerce and Bank of Montreal trailed.

Longer term, the differences between the banks are not as dramatic as they are in the shorter term, Richardson said. "…But it's very clear that both CIBC and Bank of Montreal have lagged the group over the past 20 years when it comes to dividend growth," the firm wrote.

The biggest reason to focus on dividend growth is its high correlation with strong share performance. The banks with the highest cumulative three-year share price returns to Feb. 28 are RBC, up 27.2 per cent; TD, up 25.5 per cent; and, National Bank, up 19.1 per cent.

Income investors should take special note of the relative bank performance on dividend growth. The best inflation hedge of them all is a stock that raises its dividends every year. Globeinvestor.com data shows TD, National and RBC have grown their dividends by between 7 and 9 per cent annually over the past five years. The cost of living was up an average 1.7 per cent a year over that period.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter