Royal Bank of Canada (USA) (RY): A Quest For Dividend Growth in the Canadian Banking Industry

In the past year National Bank increased its quarterly dividend from $0.79 to $0.83 and then again to $0.87. This is a 10.1% annual increase. I expect annual dividend growth at the higher end of my estimated range of 5.6-11.9%. National Bank has the lowest payout ratio of all the banks, which also suggests that it has the best ability to grow its dividend. That said, National Bank typically likes to keep its payout ratio lower than the other five banks.

There are a number of good dividend growth candidates among the Canadian banks, but overall I like National Bank’s dividend growth prospects the best.

Conclusion

Right now Royal Bank of Canada is above my target price, but should it come down to $50 I’d consider adding to my current position. At $50 the dividend yield would be an enticing 5.0%, and I expect future annual dividend growth around 8%. There are other banks that offer similarly enticing dividend fundamentals, so it might just be a matter of waiting for the first one to fall below my target price. Should this happen I’d consider investing in National Bank, Bank of Nova Scotia, Toronto-Dominion Bank, or Royal Bank of Canada.

Michael Weber owns shares of Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Canada and The Bank of Nova Scotia. The Motley Fool recommends The Bank of Nova Scotia (USA).

The article A Quest For Dividend Growth in the Canadian Banking Industry originally appeared on Fool.com and is written by Michael Weber.

Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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