In a lengthy note on Canadian bank stocks, Murray Leith and Dan Hincks at Odlum Brown give their thoughts on dividends - in particular, when they're likely to be increased.
The financial crisis, recession and uncertainty over international regulatory changes have frozen bank dividends for about two years, and longer in some cases. However, with most of the trouble out of the way, the analysts expect hikes to resume later this year or early next year.
They believe that Toronto-Dominion Bank , National Bank of Canada , Royal Bank of Canada and Bank of Nova Scotia are the most likely to get the ball rolling, given that they have the lowest payout ratios relative to estimated 2011 earnings - ranging between 37 per cent and 43.9 per cent.
At the other end of the spectrum, Bank of Montreal and Canadian Imperial Bank of Commerce have higher payout ratios of 48.2 per cent and 51.4 per cent.
However, the analysts remain somewhat cautious on Canadian bank stocks, recommending that investors not overweight them.
"Investors who are overweight Canadian Bank shares (greater than 20 per cent of overall equity holdings) should consider diversifying into other sectors with better risk and return attributes," they said in a note.
"Outside the financial services arena, there are numerous multinational companies in the Consumer Products and Health Care industries, like Procter & Gamble or Johnson & Johnson, which we believe have better long-term potential."