In addition, the big banks are all a part of “The Winners,” the stocks that have far outperformed the major North American indices during the second half of 2013, and currently sit at or near record highs – except for CIBC, which is within a hair of its 52-week high.
This week, we’ll find out if this impressive rally will be reinforced by bottom line results, as all of the big six banks are slated to report quarterly earnings for the period ending October 31.
According to CIBC, health care, tech, and non-bank financials are the groups with the highest beat rates this earnings season.
Since RBC, Scotiabank, and TD all hiked their dividends in the previous quarter, Barclays analyst John Aiken suspects that BMO, CIBC, and National Bank are likely to follow suit when they report earnings this week. Stonecap Securities analyst Brad Smith mentioned that given the high share price (in dollar terms) of CIBC, National Bank, and TD Bank, the announcement of a stock split from any of these banks wouldn’t be completely surprising, and would help make these stocks more attractive to retail investors. In addition, The Globe and Mail’s Scott Barlow noted that last week’s pullback in the financials made some names more attractive from a technical standpoint, highlighting TD and Scotiabank.
Market participants will be focusing on the banks’ outlooks for the year ahead, and any commentary on the housing market in particular. Whether the banks think that the prospect of “lower for longer” with regards to interest rates will rejuvenate housing activity or if sales were pulled forward in droves as interest rates rose during the summer will give an indication as to whether mortgage lending will help contribute substantially to earnings growth in 2014. The coming year will likely be a period of transition for banks, as a rising rate environment would help margins but dampen the growth of mortgage credit.
Since the big six banks have enjoyed a major rally in the second half of this year, any earnings disappointments may cause a wave of profit-taking.
Here’s the earnings schedule for the big six banks, along with the consensus EPS estimate:
Bank of Montreal (BMO): Tuesday, $1.58
National Bank (NA): Wednesday, $2.09
Royal Bank of Canada (RY): Thursday, $1.38
TD Bank (TD): Thursday, $1.99
CIBC (CM): Thursday, $2.15
Scotiabank (BNS): Friday, $1.32
And here’s how these banks stack up in terms of year to date performance and dividend yields based on Friday’s closing price:
BMO: +20.30 percent, yield of 4.02 percent
NA: +19.49 percent, yield of 3.76 percent
RY: +16.43 percent, yield of 3.80 percent
TD: +16.34 percent, yield of 3.51 percent
CM: +13.61 percent, yield of 4.22 percent
BNS: +13.41 percent, yield of 3.80 percent