Scotiabank raises its dividend

The boost came at least three months earlier than most analysts expected, on the back of higher profits in most of its divisions.

“Our record performance this quarter is a result of strong contributions from all four of our growth platforms,” Scotia president and chief executive Rick Waugh said on a conference call with analysts Tuesday to discuss the bank’s record first quarter profits and revenues.

“The strength of these results allowed us to raise our divided.”

The bank bumped up its quarterly dividend by three cents, or about six per cent, to 52 cents per share. Rival TD Bank (TSX:TD) raised its dividend about eight per cent last week and National Bank raised its dividend last quarter.

Scotiabank earned $1.17 billion in its first quarter, an increase from $988 million a year earlier. Cash earnings per share were $1.09, above analyst expectations of $1.06, according to Thomson Reuters.

Revenue increased to $4.12 billion, compared with $3.91 billion a year earlier.

The results capped a strong quarter for Canada’s five biggest banks in which they earned a combined $6.1 billion in profit, well above the $5.1 billion made in the comparable three-month period a year ago.

While Scotia’s dividend increase was modest, investors were eager for any boost after waiting three years for a sign of movement, said Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd.

The pressure is now on at Royal Bank (TSX: RY), where shareholders pressed executives about an increase last week at its annual meeting, as well as Bank of Montreal (TSX:BMO) and CIBC (TSX:CM).

“TD did get the ball rolling here, and has basically put the rest of them on note. If you’re a shareholder in any of the other banks you’re going to start demanding it from them as well,” Watson said.

CIBC and Royal are most likely to raise their dividends in the next quarter, while BMO might hold out until the second half of the year, he added.

Despite its surprise dividend increase, Scotiabank may have fallen victim to the success of its predecessors during the quarter — its shares were down 86 cents to close at $59.29 on the Toronto Stock Exchange.

Scotiabank shares, which gained about 16% in 2010, have been trading at a premium compared to its peers, and it needed to produce quarterly results that clearly beat expectations in order to impress shareholders, Watson said.

“They were trading at a premium because the market put them up on a pedestal, and here you have earnings which essentially met expectations,” he said.

“On a relative basis, if you look at what the other banks did, you can say ‘OK, TD and Royal blew things away; here we’ve just got a steady eddy performer, maybe they do not deserve as great a premium as we once gave them.”

Canadian banking profits at Scotiabank grew to $496 million this quarter from $435 million in the comparable year-ago period, driven by strong mortgage and deposit volume growth that led to higher revenues from transactions.

However, profit at Scotia Capital, the bank’s investment banking arm, fell 19% to $308 million from $381 million in the year ago period.

Its peers reported mixed results from capital markets, which remain volatile, with Royal and BMO reporting improvements, while TD and CIBC saw profits drop.

Like its peers, Scotia reported that provisions for credit losses — the money it sets aside to cover bad loans — were down significantly to $269 million from $371 million a year ago, reflecting the improved economic conditions and fewer loan defaults.

International banking results was up to $342 million from $254 million, as the bank benefited from its aggressive international growth strategy — with strong results from recent acquisitions in Puerto Rico and Thailand.

Its new global wealth management division earned $216 million from $183 million, driven by strong sales in its international insurance business and in its mutual funds and brokerage businesses as market conditions improved.

Scotiabank has more than 70,000 employees serving some 18.6 million customers in more than 50 countries.

The bank’s annual meeting is scheduled to be held on April 5 in Halifax.