The banking industry in Canada and Australia are similar in many ways. For example, a handful of banks dominate the market in both the countries and hence competition is minimal. However in terms of returning profits to shareholders, Aussie banks fare better than Canadian banks according to a report by Moody’s and quoted in a Financial Post article.
From the article:
A new report by Moody’s throws the debate into sharp relief by comparing Canada’s big banks to lenders in Australia. The two banking systems have much in common: Both are dominated by a handful of players that benefit from limited competition. Robust retail operations underpin consistent, stellar profits.
Where they part company is on the issue of how much profit gets returned to shareholders. Investors would do well to pay attention. According to Moody’s, shareholders in Australia (so far) are way better off.
The rating agency highlights what it calls capital allocation strategies — how lenders in the two countries deal with excess cash.
“Although banks in both systems have strong profitability and attractive shareholder returns, Canadian banks invest a greater proportion of their earnings in international operations, while Australian banks return more to shareholders,” said David Beattie, a senior analyst at Moody’s and one of the authors of the report.
That’s because Australian banks stick to their knitting by focusing on boring but profitable domestic operations, and as a result are left with more capital on the table. Lenders in the land down under pay average dividends equivalent to about 75% of net profit, versus about 45% for banks here, according to the report, released on Wednesday.
Source: Australian banks pay more to shareholders than Canadian counterparts, Moody’s says, April 18, 2014, Financial Post
It should be noted that Australian banks pay more in dividends than their Canadian peers because of favorable tax policies in paying dividends to shareholders. In Australia double taxation of dividends does not exist – where in an investor receiving the dividends pays taxes on it in addition to the company paying corporate taxes.
Four Aussie banks trading on the US markets are listed below with their current dividend yields:
1.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 4.67%
2.Company: National Australia Bank Ltd (NABZY)
Current Dividend Yield: 5.17%
3.Company:Commonwealth Bank of Australia (CMWAY)
Current Dividend Yield: 4.91%
4.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 5.06%
Five Canadian banks on the US markets are listed below with their current dividend yields:
1.Company: Bank of Nova Scotia (BNS)
Current Dividend Yield: 3.98%
2.Company: Bank of Montreal (BMO)
Current Dividend Yield: 4.05%
3.Company: Royal Bank of Canada (RY)
Current Dividend Yield: 3.90%
4.Company: Toronto-Dominion Bank (TD)
Current Dividend Yield: 3.69%
5.Company: Canadian Imperial Bank of Commerce (CM)
Current Dividend Yield: 4.10%
Note: Dividend yields noted above are as of Apr 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: Long BNS, BMO, CM RY and TD