Nigel D’Souza, our Financial Services Analyst at Veritas Investment Research, joined BNN Bloomberg’s Amanda Lang to discuss why he believes the Office of the Superintendent of Financial Institutions will allow Canadian banks to hike dividends and pursue share buybacks once more.

“I think it is highly likely that OSFI announces a lifting of the capital restrictions that were rolled out at the start of the pandemic,” Nigel said. “I expect OSFI to announce that banks can pursue dividend increases and share buybacks.

“It is a prudent decision in an environment where pandemic-related risks are subsiding, and when you look at the balance sheets for the banks, they are all extremely well-capitalized.”

To understand the capacity for dividend increases, investors need to look at earnings for 2022 because dividends are paid out of earnings, not capital. National Bank has the highest capacity and could increase its dividend by 30% or more, while Bank of Nova Scotia doesn’t have any capacity to increase its dividend. “That could potentially disappoint investors.”

He said that the remainder of the Big Six banks could increase dividends by 10% to 20%. 

Bank of Montreal, Royal Bank and Toronto Dominion Bank have the highest capacity for buybacks, while the other three are more limited.

Nigel also discussed what the market is pricing in for dividend increases and buybacks and what higher interest rates could mean for the banks.

Watch the Replay: I expect OSFI to announce banks can pursue dividend hikes and share buybacks: Analyst 

MORE FROM VERITAS

We’re very proud of the performance of our V-List model portfolio, which now has a 17-year track record.

In this 11-minute video, Anthony Scilipoti, Veritas President and CEO, and Darryl McCoubrey, our Head of Research and Head of our Investment Committee, discuss the approach for picking stocks for the V-List and the performance through the first three quarters of the year.

They discuss:

• Performance: Since its inception in 2004, the V-List has outperformed S&P/TSX Composite by 314 basis points annually (as of the end of September). It is also outperforming this year.
• The process: It is a bottoms-up, equally-weighted portfolio. Names must be larger cap and liquid. The V-List is also sector agnostic and has low turnover. “Our level is diligence is deeper,” Anthony said. “Our analysts cover fewer names, and they spend more time looking at the details associated with those names.”
• Focusing on cash-based returns: We focus on actual cash-based returns instead of longer-term growth stories dependent on low-cost equity funding. Our Buys have outperformed the S&P/TSX Composite by 377 basis points over the past 20 years, while our Sells have underperformed by 446 basis points.
• Inflation: Our current strategy focuses on companies that provide essential goods and services. “It is important we focus on essential things: real estate, energy, food. These are the kinds of things that can pass along inflation and safeguard our returns,” Darryl said. Specifically, we increased our allocation to traditional energy while avoiding renewable energy due to its premium valuations.

Watch the Replay: Focusing on the Essentials: V-List Overview Q3-2021 - Video with Anthony Scilipoti & Darryl McCoubrey

More News and Insight from Veritas

October 24, 2021
SNC-Lavalin suing government for damages over Montreal’s Champlain Bridge project - Veritas Special Situations Analyst Dimitry Khmelnitsky commented on the company’s lawsuit versus the Canadian government, noting that the lawsuit is another indication that SNC’s decision in 2019 to exit fixed-price construction was the right one.

October 21, 2021
Emera not currently the best choice in utilities - Darryl McCoubrey, VP of Utilities and Infrastructure at Veritas, is the only analyst with a Sell rating on Emera. He joined BNN Bloomberg to discuss why he is wary of the stock.

October 13, 2021
Shareholders should look to lock in gains on Lightspeed shares amid competitive pressures - Veritas’s research about Lightspeed’s disclosure and growth prospects is referred to in this piece by Globe & Mail columnist David Milstead.