A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, Jan. 22Mark Blinch/Reuters
The big banks know what investors expect of them and they deliver.
So it is that Royal Bank of Canada just announced it will bump up its dividend for the upcoming quarter. Since 2012, RBC has maintained a pattern of two dividend hikes each year. The upcoming increase will take the quarterly payout to 81 cents per share from the 79 cents it paid in the two previous quarters. Prior to that, it paid 77 cents for two quarters and before that it paid 75 cents.
Before that it paid 71 cents for two quarters, and before that it paid 67 cents. Before that, shareholders received 63 cents and 60 cents for two quarters each (here's RBC's official dividend history for its common shares). The point of this repetition is to demonstrate how the frequency of dividend increases is being maintained at Canada's largest bank as measured by market capitalization, but the level of dividend growth has slowed recently. Add this one bank at least to the list of dividend stalwarts that aren't pumping out dividend increases like they used to.
It's hard to find an investing strategist or portfolio managers these days who doesn't think both stock and bond market returns will be subdued in the years ahead as a result of slow growth and an aging population that undercuts growth in productivity. Weak economic growth helps explain why RBC missed analyst profit estimates in announcing its most recent quarterly earnings. Likewise, slower growth plays out in the bank's recent dividend growth pattern. The quarterly payout rose 4 cents in 2015, compared to 8 cents in 2014 and 7 cents in 2013.
As the economy goes, so goes dividend growth. This in turn suggests lower total returns for dividend stocks going forward on the basis of lower yields and more restrained share price growth. If a company is increasing its dividend at a slower rate, its shares may be a little less attractive to investors.
The good news here is that dividend growth, even reduced levels, can still provide inflation protection. RBC's dividend increase last year amounted to 5.3 per cent. The inflation rate in 2015 was about 1 per cent.