I really love bank stocks, and have been quite happy with my BMO so far (given, we’re still on our honeymoon as I only bought it 2 weeks ago). CIBC would be nice with a slightly higher yield (its at 3% right now) as its payout ratio is the lowest of all the banks (at 34%) so in theory it has the most cash to pour money into dividends. I like their products (PC Financial is backed by CIBC) and the fact that they’re trying to develop internationally (they own a massive chunk of FirstCaribbean).
HOWEVER, 3% is just 3%. With BMO still up at 3.8% its pretty tough to consider other Canadian banks. When I start looking in other sectors (other than tobacco) things get even worse. Manulife Financial (MFC) looks quite a bit better then their competitor, however they have a relatively pitiful 5-year average dividend of 1.7% (its currently at 2.2%, so a good buy if you like the company). You’d think there’d be massive growth to compensate for such a low dividend, however their average 3 year dividend increase is comparable to BMO’s (26% vs. 23%). The stock increase in price hasn’t been that impressive compared to BMO (MFC grew at 12% vs BMO growing at 15%). One very nice thing about MFC in relation to BMO is that MFC’s current payout of 28% is much smaller then BMO’s massive 45%. I wish the insurance companies would pass more cash along to shareholders, but perhaps there is legislation that requires them to keep a certain amount of money on hand.
Maybe its just a case of different industries and the price of diversification, but banking definitely seems more lucrative than insurance.
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