Profit growth of at Canada’s big banks is expected to moderate in the next few quarters, but analysts say several banks are still likely to sweeten their "slower growth" outlooks with dividend hikes when they report earnings this week.

The big six banks are to start reporting third quarter earnings beginning on Tuesday, with Scotiabank and Bank of Montreal first out of the gate. The other four members of the big bank club – TD, Royal Bank, CIBC and National Bank – are to report on Thursday.

Q3 2012 bank earnings

Bank Earnings per share (analyst consensus)
BMO $1.39/share
Scotiabank $1.19/share
CIBC $1.95/share
National Bank $1.90/share
Royal Bank $1.20/share
TD Bank $1.86/share

"Conditions remain challenging but, in our view, the operating businesses are fundamentally sound and still growing," writes Jason Bilodeau, an analyst at TD Securities.

But that growth is clearly slowing. Earlier this month, Bilodeau trimmed his 2012 fiscal year earnings estimates for the big six by an average of 1.1 per cent, citing a softer outlook for wholesale banking and wealth management, slower loan growth and difficult market conditions.

The consensus among analysts calls for the big six to post Q3 year-over-year earnings growth of about 4.9 per cent.

Moderation ahead

CIBC World Markets analyst Rob Sedran sees cooler third-quarter profit growth as a harbinger of the moderation to come in future quarters.

"The current macro environment is less than fertile ground for bank profit growth," Sedran says.

"As such, we continue to model modest earnings growth assumptions for the large Canadian banks both for the remainder of the year and into 2013." 

The banks have already signalled that mortgage lending is cooling.   

Despite a widespread "slower-growth" theme, many analysts think bank shareholders will see several dividend hikes announced this week. "We expect to see dividend hikes from CIBC, Royal Bank, and TD Bank and possibly BMO," Bilodeau says. 

Current quarterly dividends for the big 6 banks

Bank Quarterly dividend per share
BMO 70 cents
Scotiabank 55 cents
CIBC 90 cents
National Bank 79 cents
Royal Bank 57 cents
TD Bank 72 cents

Scotia Capital analysts list TD, CIBC and BMO as likely dividend boosters, while Barclays analyst John Aiken suggests Scotiabank, CIBC and TD as the most likely candidates for dividend payout boosts.

"We continue to believe that dividend hikes will mimic earnings growth, as the banks seek to balance market expectations against the pending new capital regime," Aiken wrote in a note to clients.

Besides pleasing shareholders (who have seen bank share prices fail to make much headway this year), dividend hikes will be welcomed by Bank of Canada governor Mark Carney. Last week, Carney complained that corporate Canada was sitting on too much of its profit (he called it "dead money") and urged corporate managers to boost dividends, buy back shares or spend it on expanding their businesses.

"Their job is to put money to work and if they can’t think of what to do with it, they should give it back to their shareholders," Carney said.

Canadian banks currently pay out between 39 per cent and 51 per cent of their profits as dividends. Most banks have target payout ratios between 40 per cent and 50 per cent. 

At current stock prices, the dividend yields for the big banks range from a low of 3.56 per cent (at TD Bank) to 4.84 per cent (at BMO).

With files from The Canadian Press