Cash-rich Canadian companies embrace dividend strategy

Thu Feb 28, 2013 12:33pm EST
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By Andrea Hopkins

TORONTO (Reuters) - Canadian companies of nearly every stripe have announced big dividend increases this year, aiming to dole out mountains of cash on a bet that shareholders prefer sweeter payouts to their throwing money at investments in an uncertain economy.

Bank of Montreal (BMO.TO: Quote) - Canada's No. 4 lender and the first of the big five banks out of the gate this year with quarterly financial results - set the tone for the lenders early this week with a surprise dividend increase.

But in the days before that, a swath of Canada's biggest names had already jumped on the dividend bandwagon. In telecoms, BCE Inc (BCE.TO: Quote) and Rogers Communications Inc (RCIb.TO: Quote) raised payouts; in pipelines, TransCanada Corp (TRP.TO: Quote) and Enbridge Inc (ENB.TO: Quote), and in retailing, Metro Inc (MRU.TO: Quote) and Tim Hortons Inc THI.TO.

A host of others - Magna International Inc (MG.TO: Quote), Suncor Energy Inc (SU.TO: Quote) and Telus Corp (T.TO: Quote), to name three - are likely to raise their payouts or dividend targets or both sometime this year.

"Companies are swimming in cash," said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services. "We've got a lot of mature companies in Canada that are unsure of their next steps, so instead of blowing it on bad acquisitions or doing dumb things, they pay it back to shareholders and they'll get rewarded with a higher stock price."

The trend is picking up steam in Canada because richer dividends are one of the best ways to attract and keep investors in the current investment climate. Stock prices are languishing, while low interest rates are forcing investors to search for yield.

Canada's two largest banks, Toronto-Dominion Bank (TD.TO: Quote) and Royal Bank of Canada (RY.TO: Quote), on Thursday followed BMO's lead by jacking up their own payouts. Canadian Imperial Bank of Commerce (CM.TO: Quote) did not, and paid the price, seeing its share price tumble in disappointment.

"The lack of an increase in the dividend, despite a less than 45 percent payout ratio, may dampen investors' enthusiasm as it may bring into question management's view of the sustainability of the current quarter's earnings," Barclays Capital analyst John Aiken said of CIBC's results.   Continued...