Canadian financial institutions Royal Bank of Canada (NYSE: RY), Bank of Montreal (NYSE: BMO), and Bank of Novia Scotia (NYSE: BNS) all raised their dividends since February 28, as MarketBeat’s data on recent dividend increases show. 

All three banks are large caps and heavily weighted components within the Canada Stock Market Index, as tracked by the iShares MSCI Canada ETF (NYSEARCA: EWC) and other ETFs. Canadian stocks, as a group, outperformed the S&P 500 last year, and are slightly outperforming so far in 2023. 

Canadian bank stocks have been following roughly the same trajectory as U.S. financials when it comes to increased revenue growth in recent quarters, but earnings growth has been choppy.

The Royal Bank of Canada, Bank of Montreal, and the Bank of Novia Scotia are all expected to post earnings declines this year, even as they all increase their shareholder payouts. 

According to a January report from DBRS Morningstar, “The Canadian banking outlook for 2023 is affected by a challenging operating environment featuring muted economic growth and the increasing likelihood of a recession.”

The report went on to say that due to a shifting risk environment, Canadian regulators are requiring banks to set aside more capital as a buffer against economic risks of rising rates. Fortunately, wrote the DBRS Morningstar analysts, the big Canadian banks “are entering 2023 from a position of strength with strong asset quality, ample liquidity buffers, and sound capital levels.”

Royal Bank of Canada

The largest component within the Canadian stock index, by market capitalization, Royal Bank of Canada increased its dividend by 0.89%, to $0.9920. The bank’s current yield is 4.04%. 

The Toronto-based bank operates more than 1,300 branches in Canada, the U.S., and 73 other countries. 

Revenue growth accelerated in the past two quarters, and while the company has a long history of profitability, earnings growth declined in two of the past three quarters. This year, Wall Street expects earnings of $8.68 a share, which would be a decline of 22% from last year. As of now, that’s expected to rebound somewhat in 2024. 

When the bank reported its fiscal first quarter on March 1, it said a boom in trading offset weaker results from the retail banking unit. 

Bank of Montreal

The Bank of Montreal boosted its dividend by 1.92% on February 28, bringing the current payout to $1.0750, up from $1.0548. Its yield is 4.54%.

It also reported quarterly results on February 28, topping earnings estimates, with the help of trading income.  

The stock has been forming a consolidation for the past year, correcting 34% so far, and undercutting previous structure lows from 2021, as you can see on its chart, using a longer-term view.

On February 1, the company completed its acquisition of San Francisco-based Bank of the West from BNP Paribas SA (OTCMKTS: BNPQY). The acquisition will add 1,000 U.S. branches to the BMO portfolio.

Similar to the Royal Bank of Canada, analysts expect a decline in earnings this year, but a rebound of 5% in 2024. 

Bank of Novia Scotia

On February 28, the Bank of Nova Scotia increased its dividend by 2.38%, bringing the current dividend to $0.7740, up from $0.7560. Its yield now stands at 6.26%. 

This is yet another case of a bank expected to see an earnings decrease this year, but then a single-digit return to growth in 2024. 

In a February 13 report, Bank of America said the Bank of Novia Scotia would benefit from resilience of the Canadian consumer, along with better-than-expected economic growth in Latin American markets, where the bank has a presence. 

However, it cited risks including those associated with high interest rates and possible recession, such as a sharp downturn in the Canadian housing market and a rise in the unemployment rate, which could lead to higher credit losses. If the Latin American economies weaken more than expected, or if oil prices plunge, those developments could hurt the bank’s growth this year.