BMO, Scotiabank boost dividends as profits top estimates

Tue Aug 28, 2012 6:06pm EDT
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By Cameron French

TORONTO (Reuters) - Bank of Nova Scotia BNS.TO and Bank of Montreal BMO.TO posted stronger-than-expected quarterly profits on Tuesday and raised their dividends, even as signs emerged that core consumer lending was slowing after years of robust growth.

Shares of BMO, Canada's fourth-largest bank, rose on the surprise news of the more generous payout. Raising the dividend for the first time in five years, the bank was the last in the sector to resume such increases.

Prior to the onset of the financial crisis in 2007, Canadian banks raised their dividends usually twice a year.

At the same time, BMO lowered its payout ratio to a range of 40-to-50 percent from 45-to-55 percent, meaning it will commit less of its profit to future payouts.

"The dividend raise was moderate and the targeted payout range reduction should temper expectations going forward," said Todd Johnson, a portfolio manager at BCV Asset Management in Winnipeg.

He said the conservative dividend policy, combined with BMO's acquisition of Wisconsin-based lender Marshall & Illsley last year, suggested the bank is tilting its focus more to growth than income.

The two banks are the first to report in a fiscal third-quarter earnings period that could provide more evidence of a slowing Canadian economy after years of relatively steady growth.

Canadian banks escaped the U.S. financial crisis in relatively strong shape, and since then have been consistently ranked as the world's strongest lenders.   Continued...