National Bank proceeding with sector's first stock split since downturn

MONTREAL – Expectations for a stronger economy in Quebec next year has prompted the National Bank of Canada to raise its cash dividend and make the Canadian banking sector’s first stock split in more than seven years.

The Montreal-based bank’s next quarterly cash dividend will rise by six per cent to 92 cents per share, payable Feb. 1. That will be followed by a one-for-one stock dividend, payable Feb. 13.

Revenue and net income at Canada’s sixth-largest bank were down from a year earlier amid more difficult conditions in the financial services sector.

Still, National Bank (TSX:NA) remained profitable, earning record full-year profits on an adjusted basis.

Excluding certain items, the bank had $1.49 billion of adjusted net earnings, or $8.41 cents per share, for fiscal 2013 — up from $1.396 billion or $7.86 per share in the 2012 financial year.

“We delivered a good performance in 2013 and remain optimistic for the coming year,” CEO Louis Vachon said during a conference call Wednesday.

The bank expects the Canadian economy will grow by 2.2 per cent next year, up from 1.6 per cent in 2013, with real GDP growth in Quebec doubling to two per cent and prompting more investments and exports.

It also hopes to gain market share from a new way of selling mortgages that allow 75 per cent of loans to be finalized during one meeting. The change adopted across its Quebec network will be rolled out outside the province over the next year and boost lending, increase cross-selling opportunities and reduce costs through efficiencies.

“We did manage this year to do about a seven per cent increase in both EPS and net profit on an adjusted basis and that’s with the Quebec economy growing at one per cent,” he told analysts.

“Hopefully, a stronger Quebec economy will mean that commercial lending in 2014 will be a little stronger than what we saw in 2013.”

Despite the dividend increase, the bank will still be at the low end of its payout ratio target. But Vachon told analysts that its large shareholders have indicated they prefer that the bank remains conservative to ensure the dividend can be maintained even if there is an economic slowdown or the bank faces adverse conditions.

“When we look at the performance of our shares, it’s hard to argue that we suffer from the low payout,” he said.

National reported $337 million or $1.89 per cent in net income for the fourth quarter ended Oct. 31, resulting in a full-year profit of $1.554 billion or $8.80 per share — both lower than the comparable periods last year.

Revenue declined three per cent from a year ago to $1.254 billion in the fourth quarter, and was down seven per cent to $5.163 billion for the 2013 financial year.

Under standard accounting, the bank’s profit and revenue were below expectations but its fourth-quarter adjusted earnings met analyst estimates compiled by Thomson Reuters.

National Bank had $370 million of adjusted net income, or $2.09 per share, in the fourth quarter — up eight per cent from $1.93 per share a year earlier.

Analysts had estimated $2.09 per share of net income and adjusted net income for the quarter, and $1.329 billion of revenue.

In the comparable periods of 2012, National Bank had $351 million or $1.97 per share of net income in the fourth quarter and $1.634 billion or $9.32 per share for the full year.

National is the second major Canadian bank, albeit the smallest of the Big Six, to report financial results for the year and quarter ended Oct. 31. Bank of Montreal began the earnings season on Monday with a report that appeared to beat analyst estimates but disappointed many, spurring a decline the prices for bank stocks.

CIBC (TSX:CM), Royal Bank (TSX:RY) and Toronto Dominion (TSX:TD) report their results on Thursday and Scotiabank (TSX:BNS) wraps up the earnings season on Friday.

Analysts said National Bank’s results should help to offset the negative impact on its shares from Tuesday’s weak performance by the Bank of Montreal (TSX:BMO).

“While we would not expect too much of a reaction today, it may regain some of the relative ground lost yesterday. However, National Bank’ results are not likely to relieve the relative pressure on BMO, particularly when viewed through the relative lens of domestic margins and provisions,” wrote John Aiken of Barclays Capital.

After falling $1.75 on Tuesday, National Bank’s shares lost another 94 cents to $89.96 in late afternoon trading on the Toronto Stock Exchange.

Note to readers: CORRECTS dividend to 92 cents in para 2