Up to 20% Dividend Hikes: Regulator Lifts Ban for Canadian Bank Stocks and Others!

Patient investors are rewarded with dividend hikes after OSFI lifts the ban. It’s not too late to buy these dividend stocks!

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published November 11, 2021 8:00 am EST

Almost 20 months after the regulator, the Office of the Superintendent of Financial Institutions (OSFI), suggested the federally regulated financial institutions pause dividend increases and suspend share repurchases to be cautious during the onset of the pandemic, the OSFI lifted the ban last week on November 4.

You’ll see big dividend increases coming soon if they have not already happened at our insurance companies and the big Canadian banks.

One dividend stock firing off with a 20% dividend increase

Sun Life Financial (TSX: SLF)(NYSE: SLF) is one of the first financial institutions to raise its dividend. Essentially, the life and health insurance company maintained the same dividend for eight quarters, or two years. The quality company originally announced the same $0.55-per-share quarterly dividend on November 3 but boosted it to $0.66 per share instead after the ban was lifted. This is a whopping 20% dividend increase!

Although such a massive dividend hike is exciting for investors, it’s important to point out that it would be an increase of approximately 9.5% on an annualized basis from two years ago. Thinking like this better aligns with the long-term expected growth rate of the business.

At $70.39 per share at writing, Sun Life stock offers a yield of almost 3.8%. It is the darling in the space and has stock price momentum. The stock is reasonably valued compared to its long-term normal valuation trading at a blended price-to-earnings ratio of roughly 11.9. However, that’s a cheap multiple for an expected growth rate of approximately 9%.

Another dividend stock boosting dividend by 10%

Intact Financial (TSX: IFC) is retaining more earnings for the company, as after OSFI lifted the ban, the insurance stock boosted its quarterly dividend by 9.6%, which is a normal increase. The quality stock has maintained its quarterly dividend for seven quarters before this hike. Its previous dividend increase in March 2020 was 9.2%.

The dividend stock’s new quarterly dividend of $0.91 per share is good for a yield of 2.1% at $169.87 per share at writing. The stock appears to be undervalued with about 17% upside potential over the next 12 months.

Intact Financial just reported robust third-quarter (Q3) results this week. At 91.3%, its Q3 combined ratio was solidly below 100%, which indicated a profitable underwriting business. To be sure, its year-to-date combined ratio was 89.3%. Its Q3 return on equity was 16.5%, up from 11.5% a year ago. As usual, both metrics beat the industry.

Are the Canadian bank stocks next?

Currently, the big Canadian bank stocks offer yields of 2.7% to 4.4%, with Bank of Nova Scotia providing the biggest yield. Like the federally regulated insurance companies, the ban on the big Canadian bank stocks is lifted, too. The banks will all resume dividend growth soon.

Based on the Big Six Canadian bank’s estimated payout ratios for this year, National Bank of Canada and Bank of Montreal have the biggest probability of making a massive dividend hike, followed by Royal Bank of Canada and Canadian Imperial Bank of Commerce.