Friday, August 27, 2010

Scotiabank, When Will You Give Me a Raise?

Bank of Nova Scotia (TSX: BNS) is the first company that I acquired in my DRiP portfolio, 4 years ago. I see it as a strong company that's quite good at making money (it is a Canadian bank, after all). It has held up well through the financial CDO melt-down in 2008 and through the following recession. A great company.

However, the last time the quarterly dividend was raised was for the payment of July 2008, when it went up from $0.47 to $0.49 per share. So for 6 straight quarters, the dividend has remained the same. This was understandable, since earnings were somewhat impacted by the financial melt-down and then recession. At the height of the troubles, the dividend payout ratio rose as high as 70% of earnings. This ratio was at 50% before things started going sour, and is now at 54% based on earnings from the last 4 quarters.

Another thing to consider is the status of Scotiabank as a dividend achiever -- a company that has raised its dividend every year for at least 5 years. This is important because many indexes (and index funds) use such criteria when deciding which companies to invest in. According to Scotia's web site, the bank has increased its dividend 37 out of the last 39 years.

Things have improved a lot in the last year, and although there is still some uncertainty (as regards to the new international regulations for banks), we are certainly out of the deep end. It would certainly encourage investors to see some positive sign. Even a small increase in the dividend would be seen as a sign of confidence.

So, Scotiabank, will you give me a raise now? Or will you wait some more?

What do you think?

(Scotiabank will announce details of its third quarter results on August 31, 2010 at 7h30 AM EDT.)

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