Off to a good start

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There also were 10 companies that increased their dividends, including Canadian Western Bank (CWB), which operates in the heart of the oilpatch.

“We have continued to deliver strong loan growth and maintained sound credit quality against an uncertain macroeconomic backdrop within Alberta and Saskatchewan,” CWB’s president and CEO, Chris Fowler, stated in the firm’s quarterly report.

Fowler noted that the full impact of the drop in oil prices “has yet to make its way through all facets of the economy” and that the firm raised its loan-loss provisions only slightly, to $7.4 million from $6.5 million. But, he added, CWB also raised its quarterly dividend to 22¢ from 21¢.

There were no big increases in loan-loss provisions among the other banks. The group’s combined provisions remained virtually unchanged, at $1.6 billion – still well below the $3 billion-plus reached in the first half of 2009.

So far, brokerage firms focusing on resources have taken the biggest hit from the plunge in oil prices, with both Canaccord Genuity Group Inc. and GMP Capital Inc. reporting losses. Nevertheless, both firms retained their 5¢ per quarter dividends.

Besides CWB, five other banks raised their dividends: Bank of Montreal (BMO), to 82¢ from 80¢; Canadian Imperial Bank of Commerce (CIBC), to $1.09 from $1.06; Equitable Group Inc., to 19¢ from 18¢; Laurentian Bank of Canada, to 56¢ from 54¢; and National Bank of Canada, to 52¢ from 50¢. This is the fifth dividend increase for CIBC in the past six quarters, and the third in that period for BMO, CWB, Equitable, Laurentian and National Bank.

The other banks haven’t been slouches, either. In the past six quarters, Home Capital Group Inc. has increased its dividend four times. Bank of Nova Scotia and Royal Bank of Canada (RBC) have raised theirs three times. Toronto-Dominion Bank (TD) has raised its dividend twice.

Frequency of increases does not, of course, necessarily mean the biggest dividend increase. CIBC’s five increases raised its dividend by only 13.5%. Home Capital’s four dividend increases raised its dividend by 37.5%. Equitable’s three increases add up to an overall increase of 18.8%. And TD’s two increases pushed its dividend up by 18.6%.

Cumulative increases for other banks were: 15.8% for CWB; 14.9% for RBC; 13% for National Bank; 9.8% for Laurentian; 9.7% for Scotiabank; and 7.9% for BMO.

There have been fewer dividend increases among the other financial services companies. This quarter, Manulife Financial Corp. increased its dividend to 17¢ from 15.5¢, while Sun Life Financial Inc.’s dividend rose to 38¢ from 36¢. Brookfield Asset Management Inc.’s dividend also rose, but through a three-for-two stock split, which resulted in a 12¢ quarterly payout, up from an adjusted 11.3¢. CI Financial Corp. (CI) pays a monthly dividend, which increased to 11¢ from 10.5¢.

Manulife’s increase was the second in the past six quarters, for a cumulative increase of 30.8%. CI’s increase was the fourth in the same period, and Brookfield’s was the third, resulting in cumulative increases of 22.2% and 20%, respectively. Guardian Capital Group Ltd. and Fiera Capital Corp. also have had significant cumulative increases in the past six quarters, amounting to 36.4% and 30%, respectively.

Here’s a look at the industries in more detail:

– Banks. Nine of the deposit-taking institutions had higher earnings, with PWC Capital Corp. reporting slightly positive net income vs a loss a year earlier and the declines for three of the others were very small.

That leaves only Equity Financial Holdings Inc. and First National Financial Corp., both of which were in a loss position. Equity Financial is building up its mortgage business after selling its transfer agent and corporate trust services business to TMX Ltd. in 2013. First National, which also is a mortgage provider, had large realized and unrealized losses on financial instruments.

CIBC had the biggest earnings gain, at 182.9%, but this gain reflects a weak quarter a year earlier – when CIBC had a $420-million goodwill impairment charge related to subsidiary FirstCaribbean International Bank Ltd. – rather than very strong results this year.

– Life insurers. Manulife was the only lifeco with a decline in earnings. This decrease was related to investments rather than what the firm considers “core” activities. On a core (insurance) basis, earnings were up in all three geographical regions: Asia, Canada and the U.S.

The biggest gain in this category was E-L Financial Corp.’s 159.1% increase in net income, which was mainly the result of the increase in the fair value of investments.

GWL had higher income in Canada, the U.S. and Europe. Sun Life’s results were mixed, with MFS Investment Management and Asian insurance earnings up and Canadian and U.S. insurance net income down.

Industrial Alliance Insurance & Financial Services Inc. was very strong in individual insurance, but reported only small earnings gains in its other businesses.

– Property and casualty insurers. Three of the five P&C insurers had higher earnings, including Kingsway Financial Services Inc., which had been in the red for years. Kingsway’s net income of $3.4 million isn’t big, but this marks the firm’s second consecutive quarter with positive net income, which suggests that the firm finally may be on a growth path.

The decline at EGI Holdings Inc. was the result of poor underwriting results, particularly in the Maritimes, due to the severe winter.

Fairfax Financial Holdings Ltd.’s big 69.9% drop came from the investment side – specifically, a drop in the gain on investments to US$176.5 million from $1 billion in Q1 2014.

– Mutual fund and investment-management firms. Six of the companies (including IGM) had increased earnings, three had drops and Stone Investment Group Ltd. was in a loss position.

Stone has not been able to get its assets under management (AUM) above $1 billion since it went public in 2006, resulting in continual losses and negative shareholders’ equity (minus $12.8 million as of March 31, 2015).

Integrated Asset Management Corp. also has had problems attracting assets, with its AUM remaining below $2 billion. The main reason for its 940% increase in net income was much higher investment gains than in Q1 2014.

The other struggling firm is AGF Management Ltd., which also has problems maintaining AUM levels. It had net redemptions of $491 million in the quarter. AGF cut its dividend by two-thirds, to 8¢ from 24¢, as of Q4 2014, in order to have money to improve its investment performance. In contrast, both CI and IGM reported strong net sales, at $1.2 billion and $537.1 million, respectively.

The earnings declines at Gluskin Sheff & Associates Inc. and Sprott Inc. aren’t worrisome. Gluskin’s drop was due to the timing of expense payments, while Sprott’s earnings often are volatile because the firm is a gold specialist.

– Distributors and suppliers. Strong growth in net income at Accord Financial Corp. and Oppenheimer Holdings Inc. contrasts strongly with Canaccord’s and GMP’s struggles. Still, Canaccord and GMP remain solid companies.

– Exchanges. TMX Ltd.’s lower earnings are the result of expenses growing faster than revenue.

– Holding companies. Both Desjardins Group and Power Financial had strong increases in net income. Dundee Corp.’s loss is no surprise, given its large investments in the energy sector.

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