Mark Lennihan
The biggest Canadian banks have all sold off since the European debt crisis kicked into high gear. With lower prices come higher dividend yields.
But analyze the Big Six payouts and you'll notice one glaring data point: Toronto-Dominion Bank is still yielding below 4 per cent, the only one of the biggest banks to do so.
At the moment, TD's dividend yield is 3.76 per cent. Its nearest competitors on this front are National Bank of Canada and Bank of Nova Scotia around 4.3 per cent, and the most distant is Canadian Imperial Bank of Commerce , with a yield just north of 5 per cent.
Why is TD so low? It certainly isn't because the bank has been stingy with its payouts. Over the past five years, its dividend hikes amount to average annual growth of almost 8 per cent, according to Bloomberg. That's the highest rate of the Big Six banks. (Royal Bank of Canada is next at 7.6 per cent.)
The root cause, then, must be TD's strong stock price. Unlike RBC, which is trading far below its peak before the 2008 crisis, TD is hovering just below its highest point in 2007, and the stock surged far higher than this when it soared to $86 per share earlier this year.
That surge is part of the reason TD's yield remains low. At the peak, TD was yielding around 2.8 per cent. Because investors still have so much confidence in the bank (rightly or wrongly), they appear happy to simply get a full percentage point more today.
Tim Kiladze