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An alternative to UK bank shares?

General discussions about equity high-yield income strategies
Wizard
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An alternative to UK bank shares?

#304100

Postby Wizard » April 29th, 2020, 12:21 pm

There has been some discussion of the pressure put on UK banks to suspend paying dividends. There has also been discussion of the possibility that when dividends do resume it is possible one, some or all of the banks may not pay what was previously planned at the point the PRA intervened. For income investors there are on the face of it two options: hold on to UK banks in the hope they resume at a reasonable level of dividend; or, sell up and abandon the banking sector.

I wonder if there is a third option, which is to look at the ADRs of two Australian Banks that trade in the US. The two banks I am thinking of are Westpac and National Australia Bank. According to Hargreaves Lansdown their US listed ADRs currently yield 12.5% and 11.6% respectively. From a practical perspective I assume that as these are US listed if a W8-BEN is in place they would not be tax inefficient.

Any thoughts on this as a way to cover banks now the UK banks are not paying?

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Re: An alternative to UK bank shares?

#304110

Postby monabri » April 29th, 2020, 12:59 pm

An Aus Fool article dated today - note the yields

"Based on its current share price, this would mean Westpac offers a fully franked 6.8% FY 2021 dividend yield and 8.9% FY 2022 dividend yield"

https://www.fool.com.au/2020/04/29/is-t ... rgain-buy/

I've no idea what the tax implications would be (10% Withholding tax ? )

There is a comment on the dividends.

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Re: An alternative to UK bank shares?

#304112

Postby monabri » April 29th, 2020, 1:06 pm

National Australia bank

https://www.ft.com/content/89c5dbb9-a08 ... fcd9a5c8a6

"National Australia Bank will raise A$3.5bn ($2.3bn) and slash its dividend by almost two-thirds as it braces for turmoil caused by coronavirus, including a surge in unemployment and a plunge in house prices."

"But analysts questioned the decision by Australia’s second-largest bank by market capitalisation to maintain any form of payout as it turned to investors for fresh capital. Like in the UK and Europe, lenders in Australia have been under pressure to halt shareholder payouts during the crisis."

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Re: An alternative to UK bank shares?

#304149

Postby SalvorHardin » April 29th, 2020, 2:29 pm

Canadian banks. Especially the "big five": Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Toronto-Dominion Bank.

IMHO Canadian banks are better run than British banks, which have demonstrated an amazing lack of concern for their shareholders for quite some time. Canada's big five didn't cut their dividends during the 2008-09 financial crisis, unlike British banks whose dividends largely vanished and when they resumed they were a small fraction of what they used to pay. Canadian bank shares are widely held by private investors, in large part because of their reliable dividends, so there's less support for regulators stopping the dividends.

"Regulators in Europe, the United Kingdom and Mexico may be forcing financial institutions to cut or suspend their dividends, but the same is unlikely to occur in Canada, according to analysts. Keeping dividends intact is a matter of reputation for Canada’s Big Five, which hasn’t cut payouts since 1940."

https://business.financialpost.com/investing/why-canadas-big-banks-defend-dividends-in-coronavirus-market-rout-and-at-all-other-times

Current yields for the big five are all above 5%, though there is a 25% withholding tax on dividends. That said if you hold the shares outside an ISA you can offset the withholding tax against your UK tax liability.

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Re: An alternative to UK bank shares?

#304305

Postby vandefrosty » April 29th, 2020, 10:55 pm

SalvorHardin wrote:Canadian banks. Especially the "big five": Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Toronto-Dominion Bank.

All of these are dual-listed in New York (not ADRs, but the same shares with the same CUSIP), so you don't have to manage them in CAD through the TSX if you don't want to. I'm not sure, but you may also avoid Canadian non-resident withholding tax by going this route, albeit by substituting whatever the US equivalent is.

One of their strengths is that they're regulated properly and prevented from wandering into risky territory (in the past, US acquisitions especially) by multiple regulators and the finance department. They historically complain that it damages their international competitiveness, but they haven't done too badly by being prevented from the missteps that have ruined other banks. There's also an unacknowledged quid-pro-quo where the regulatory environment creates high barriers to entry, so competition and financial innovation are low. In turn, fees are high and alternatives are lacking so that revenue streams are solid and pricing power is high.

As a customer with experience of banking in other countries, there's plenty to dislike about this mob. As an investor, not so much...

Greg

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Re: An alternative to UK bank shares?

#306448

Postby Wizard » May 7th, 2020, 2:39 pm

SalvorHardin wrote:Canadian banks. Especially the "big five": Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and Toronto-Dominion Bank.

IMHO Canadian banks are better run than British banks, which have demonstrated an amazing lack of concern for their shareholders for quite some time. Canada's big five didn't cut their dividends during the 2008-09 financial crisis, unlike British banks whose dividends largely vanished and when they resumed they were a small fraction of what they used to pay. Canadian bank shares are widely held by private investors, in large part because of their reliable dividends, so there's less support for regulators stopping the dividends.

"Regulators in Europe, the United Kingdom and Mexico may be forcing financial institutions to cut or suspend their dividends, but the same is unlikely to occur in Canada, according to analysts. Keeping dividends intact is a matter of reputation for Canada’s Big Five, which hasn’t cut payouts since 1940."

https://business.financialpost.com/investing/why-canadas-big-banks-defend-dividends-in-coronavirus-market-rout-and-at-all-other-times

Current yields for the big five are all above 5%, though there is a 25% withholding tax on dividends. That said if you hold the shares outside an ISA you can offset the withholding tax against your UK tax liability.

I checked with Hargreaves Lansdown, where my SIPP is, with a W-8BEN in place the withholding tax on Canadian shares if held in a SIPP is 15%. Any expected income would have to be reduced accordingly. I think that would make the current yield on offer to a UK investor holding in a SIPP with a W-8BEN in place about 5.8%.

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Re: An alternative to UK bank shares?

#306475

Postby SalvorHardin » May 7th, 2020, 3:50 pm

Wizard wrote:I checked with Hargreaves Lansdown, where my SIPP is, with a W-8BEN in place the withholding tax on Canadian shares if held in a SIPP is 15%. Any expected income would have to be reduced accordingly. I think that would make the current yield on offer to a UK investor holding in a SIPP with a W-8BEN in place about 5.8%.

Canadian withholding tax can get a bit odd from my experience outside a SIPP. The headline rate is 25%, but if you hold Canadian shares through the NYSE and have completed the American W-8BEN then you may be able to get the 15% rate. From conversations I've had with brokers over the years it depends on the policy of the custodian that they use, rather than being the broker's policy.

A good example is Canadian Pacific which I hold in the form of American listed shares with two different brokers (not in SIPP or ISA). One deducts 25% Canadian withholding whilst the other deducts 15% American withholding. I've long given up bothering about it - at least I can offset the withholding tax against my UK tax return :D

That said 75% of something (Canadian bank dividend) is better than 100% of nothing (UK bank dividend) :D

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Re: An alternative to UK bank shares?

#306477

Postby Lootman » May 7th, 2020, 3:55 pm

SalvorHardin wrote:
Wizard wrote:I checked with Hargreaves Lansdown, where my SIPP is, with a W-8BEN in place the withholding tax on Canadian shares if held in a SIPP is 15%. Any expected income would have to be reduced accordingly. I think that would make the current yield on offer to a UK investor holding in a SIPP with a W-8BEN in place about 5.8%.

Canadian withholding tax can get a bit odd from my experience outside a SIPP. The headline rate is 25%, but if you hold Canadian shares through the NYSE and have completed the American W-8BEN then you may be able to get the 15% rate. From conversations I've had with brokers over the years it depends on the policy of the custodian that they use, rather than being the broker's policy.

A good example is Canadian Pacific which I hold in the form of American listed shares with two different brokers (not in SIPP or ISA). One deducts 25% Canadian withholding whilst the other deducts 15% American withholding. I've long given up bothering about it - at least I can offset the withholding tax against my UK tax return :D

That said 75% of something (Canadian bank dividend) is better than 100% of nothing (UK bank dividend) :D

I ended up owning a Canadian share - Barrick Gold - due to its merger with RandGold. I didn't have a choice of the NYSE-listed shares or the Canadian-listed shares. I was given the Canadian ones. I'm not going to swap as that would create a large CGT liability.

I hadn't noticed any tax withholding although, in the case of gold miners, there isn't usually much of a dividend anyway. So like you, I don't care about it enough to do anything about it.

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Re: An alternative to UK bank shares?

#308924

Postby SalvorHardin » May 15th, 2020, 4:34 pm

SalvorHardin wrote:That said 75% of something (Canadian bank dividend) is better than 100% of nothing (UK bank dividend) :D

Just to announce that today I have put my money where my mouth is and have bought shares in a bank for the first time ever. HYP purists should look away now as it's one of those forbidden foreign shares, Canada's Bank of Montreal. The holding is about 2% of my portfolio.

Bank of Montreal's shares currently yield 6.95% which is 5.2% after the deduction of 25% Canadian withholding tax (for investors who don't get the reduced withholding tax rate). Bank of Montreal's share price has fallen by just over 43% in 2020, leaving the share on a historic price-earnings ratio of 7.1

Below I've reposted the link from earlier about the importance of banks' dividends to Canadian investors. This compares to the cavalier way in which British banks (and regulators) treat their shareholders, where shareholders' interests are reoutinely cast aside in favour of empire building and reckless lending.

"Keeping dividends intact is a matter of reputation for Canada’s Big Five, which hasn’t cut payouts since 1940. Not even the financial crisis, which saw U.S. and European banks slash payouts across the board, made the Big Five waver. The reliable stream of income, not the stock performance, is why investors hold the group in such high regard."

https://business.financialpost.com/investing/why-canadas-big-banks-defend-dividends-in-coronavirus-market-rout-and-at-all-other-times

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Re: An alternative to UK bank shares?

#308960

Postby TwmSionCati » May 15th, 2020, 6:53 pm

SalvorHardin wrote:... the cavalier way in which British banks (and regulators) treat their shareholders, where shareholders' interests are routinely cast aside in favour of empire building and reckless lending.


And much good the empire-building did them: not only are the Canadian banks better, they’re also bigger!

I suppose the key point from an income-investor’s point of view is how little, in the Canadians’ case, the forecast (F) values differ from the present (P) values:

PYld  | FYld  |  PCvr  | FCvr  |  PP/E  |  FP/E  | MarCap  |
6.2 | 3.6 | 1.0 | 2.0 | 16.2 | 14.0 | 81155 | HSBC Holdings
4.2 | 4.2 | 2.5 | 2.5 | 9.5 | 9.7 | 69531 | Royal Bank of Canada
4.4 | 4.5 | 2.6 | 2.4 | 8.8 | 9.2 | 58521 | Toronto-Dominion Bank
5.9 | 5.7 | 2.3 | 2.2 | 7.5 | 7.9 | 35947 | Bank of Nova Scotia
9.8 | 4.8 | 2.2 | 2.7 | 4.6 | 7.9 | 29270 | BNP Paribas
6.7 | 4.9 | 1.9 | 2.3 | 7.9 | 8.9 | 27641 | UBS AG
5.5 | 5.2 | 2.5 | 2.6 | 7.3 | 7.4 | 23598 | Bank of Montreal.
12.1 | 6.8 | 1.4 | 1.6 | 5.8 | 9.0 | 21610 | Intesa Sanpaolo
6.0 | 5.8 | 2.4 | 2.4 | 7.1 | 7.3 | 20771 | Canadian Imp. Bank
3.9 | 3.4 | 3.1 | 2.1 | 8.2 | 13.7 | 20160 | Lloyds Bank
8.8 | 4.0 | 2.4 | 3.2 | 4.8 | 7.9 | 17137 | Credit Agricole
12.5 | 6.7 | 2.0 | 2.1 | 4.0 | 7.0 | 17029 | ING Groep
3.1 | 2.6 | 4.8 | 1.1 | 6.8 | 35.9 | 16842 | Barclays
8.1 | 3.1 | 3.6 | 3.9 | 3.4 | 8.1 | 15533 | Banco Bilbao
7.7 | 4.0 | 1.9 | 2.2 | 6.8 | 11.4 | 15162 | KBC Group
1.9 | 1.3 | 13.2 | | 4.0 | | 12724 | Royal Bank of Scotland
1.5 | 3.5 | 10.9 | 2.0 | 6.2 | 14.1 | 12249 | Standard Chartered
15.8 | 3.2 | 2.3 | 2.6 | 2.8 | 12.1 | 8544 | Societe Generale S.A.
2.7 | 3.1 | | 3.6 | | 8.8 | 6850 | Erste Group Bank AG
4.0 | 4.7 | | 3.5 | | 6.1 | 4485 | Raiffeisen Intl AG

[Today’s figures, from DigiLook]

TSC

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Re: An alternative to UK bank shares?

#312382

Postby SalvorHardin » May 26th, 2020, 3:59 pm

Just to follow up, the big Canadian banks are reporting this week. Bank of Nova Scotia kicked off today with its second quarter earnings for the 2019-2020 financial year. Profits down 41% thanks in large part due to provisions for loans which are affected by the coronavirus.

Its quarterly dividend is unchanged at C$0.90 per share. That puts its shares on a yield of 6.6% before withholding tax.

https://www.theglobeandmail.com/business/article-scotiabank-profit-drops-41-as-loan-loss-provisions-soar-amid-pandemic/

Bank of Montreal and Royal Bank of Canada both report tomorrow (Wednesday 27th May). All of the Canadian big five banks are up by at least 4% today as I type this.

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Re: An alternative to UK bank shares?

#312441

Postby johnhemming » May 26th, 2020, 6:16 pm

This, I suppose is where the line between Total Return and HYP becomes material.

Broker forecasts are not 100% reliable, but they give a guide
https://www.hl.co.uk/shares/shares-sear ... -forecasts
https://www.hl.co.uk/shares/shares-sear ... -forecasts

May's forecasts for Lloyds range between 35p and 47p.

5% yield on the current price of 30p is equivalent to a price of 31.5p next year.

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Re: An alternative to UK bank shares?

#313909

Postby SalvorHardin » May 31st, 2020, 12:15 pm

Another follow up on the big five Canadian banks, all of which reported quarterly results last week.

All five made considerable provisions for lockdown-related losses. All five declared an unchanged quarterly dividend. National Bank of Canada, the sixth biggest bank, did the same.

"But in the midst of a global pandemic that prompted a wide-ranging economic shutdown, all six of the country’s big banks remained profitable, with capital levels securely intact and their quarterly dividends unaltered."

https://www.theglobeandmail.com/business/article-td-profit-drops-52-as-loan-loss-provisions-surge-consumer-activity/

Bank of Montreal has paid a dividend in every year since 1829. This 191 year period includes the long depression (1873 to 1879), two World Wars, the great depression of the 1930s, the 1970s oil crisis, the 2008-09 financial crisis and the Spanish Flu epidemic. Canadian banks take their dividends seriously. British banks don't.

Investors in banks don't want too much excitement. Boring is good.

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Re: An alternative to UK bank shares?

#314246

Postby stevensfo » June 1st, 2020, 1:23 pm

SalvorHardin wrote:

IMHO Canadian banks are better run than British banks, which have demonstrated an amazing lack of concern for their shareholders for quite some time. Canada's big five didn't cut their dividends during the 2008-09 financial crisis, unlike British banks whose dividends largely vanished and when they resumed they were a small fraction of what they used to pay. Canadian bank shares are widely held by private investors, in large part because of their reliable dividends, so there's less support for regulators stopping the dividends.

Another follow up on the big five Canadian banks, all of which reported quarterly results last week.

All five made considerable provisions for lockdown-related losses. All five declared an unchanged quarterly dividend. National Bank of Canada, the sixth biggest bank, did the same.

"But in the midst of a global pandemic that prompted a wide-ranging economic shutdown, all six of the country’s big banks remained profitable, with capital levels securely intact and their quarterly dividends unaltered."

https://www.theglobeandmail.com/business/article-td-profit-drops-52-as-loan-loss-provisions-surge-consumer-activity/

Bank of Montreal has paid a dividend in every year since 1829. This 191 year period includes the long depression (1873 to 1879), two World Wars, the great depression of the 1930s, the 1970s oil crisis, the 2008-09 financial crisis and the Spanish Flu epidemic. Canadian banks take their dividends seriously. British banks don't.

Investors in banks don't want too much excitement. Boring is good.


Since the Financial Crisis, my UK holdings as % of portfolio have gone from 100% to approx 40% and will continue to go down. Thanks for reminding me why!

I'm tempted to top-up Middlefield Canadian IT (MCT) but despite the humungous divis, it's not due for a top-up yet.

Steve

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Re: An alternative to UK bank shares?

#314250

Postby Breelander » June 1st, 2020, 1:54 pm

Breaking News: a UK Bank share paid a dividend.


I just received this email from the registrar regarding my LLPD shares....

Dear Shareholder

Lloyds Banking Group plc (the "Company")
9.75% Non-cumulative preference shares of £0.25 each

A dividend at the rate of 4.875p per share on the preference shares registered in your name on 1 May 2020 has been paid to your bank or building society in accordance with your instructions.

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Re: An alternative to UK bank shares?

#314462

Postby 88V8 » June 2nd, 2020, 9:11 am

Breelander wrote:A dividend at the rate of 4.875p per share on the preference shares.

Glad to say that all my Prefs have continued paying. And I remain confident that they will.

Peeping at Canada - and tbh I have more than sufficient Financials - I see there is also a large offering of Prefs, five years with reset.
https://canadianpreferredshares.ca/rank ... -by-yield/
and if you click on Blog in that link there is also a raft of other Prefs, including -non-Financial.

Given the lack of discussion on these in the past, I wonder if there is a problem that this enthusiastic site does not point out.
Or perhaps for us UK stick-in-the-muds it is a pirate's map to a buried chest of treasure.

More prosaically, as regards WHT, I think with a W8BEN it reduces to 15%. I await confirmation from my broker.

V8

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Re: An alternative to UK bank shares?

#314470

Postby Wizard » June 2nd, 2020, 9:56 am

88V8 wrote:
Breelander wrote:A dividend at the rate of 4.875p per share on the preference shares.

Glad to say that all my Prefs have continued paying. And I remain confident that they will.

Peeping at Canada - and tbh I have more than sufficient Financials - I see there is also a large offering of Prefs, five years with reset.
https://canadianpreferredshares.ca/rank ... -by-yield/
and if you click on Blog in that link there is also a raft of other Prefs, including -non-Financial.

Given the lack of discussion on these in the past, I wonder if there is a problem that this enthusiastic site does not point out.
Or perhaps for us UK stick-in-the-muds it is a pirate's map to a buried chest of treasure.

More prosaically, as regards WHT, I think with a W8BEN it reduces to 15%. I await confirmation from my broker.

V8

My bold.

That is exactly what HL told me. I specifically asked regarding holdings in a SIPP, not sure if that makes a difference.

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Re: An alternative to UK bank shares?

#314476

Postby SalvorHardin » June 2nd, 2020, 10:22 am

88V8 wrote:Glad to say that all my Prefs have continued paying. And I remain confident that they will.

Peeping at Canada - and tbh I have more than sufficient Financials - I see there is also a large offering of Prefs, five years with reset.
https://canadianpreferredshares.ca/rank ... -by-yield/
and if you click on Blog in that link there is also a raft of other Prefs, including -non-Financial.

Given the lack of discussion on these in the past, I wonder if there is a problem that this enthusiastic site does not point out.
Or perhaps for us UK stick-in-the-muds it is a pirate's map to a buried chest of treasure.

The problem is that preference shares, investment trusts and foreign shares are not permitted topics in pure HYP circles.

HYP practical dominates TLF, with over 50% of all investment posts on TLF being on that board. So by laying down strict HYP-Practical rules, a lot of people on TLF won't consider anything which doesn't meet the pure HYP criteria.

The reckless way in which British banks were found to have performed in the run up to the 2008 financial crisis (and during it when LloydsTSB bought HBOS) should have put most HYPers off British banks for life. But since HYP did not permit foreign banks, British banks came back onto HYP's collective radar once they started paying dividends. Their track record of dividend cuts and cancellations during the 21st century, as well as their regular misselling provisions for borderline criminal behaviour, wasn't an issue for many.

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Re: An alternative to UK bank shares?

#314477

Postby flyer61 » June 2nd, 2020, 10:27 am

Salvor,

would you like to make a comment on Bank of Montreal's results versus the others.

Thanks in advance.

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Re: An alternative to UK bank shares?

#314488

Postby Alaric » June 2nd, 2020, 11:13 am

SalvorHardin wrote: as well as their regular misselling provisions for borderline criminal behaviour.


They got hit for misselling of Pension Transfer & Opt Outs and endowments to repay interest only mortgages. PPI was a bit later. Why didn't they learn that offering incentives to under trained staff to sell potentially risky or inappropriate products was a good way of making losses in the longer run when regulators etc. got wind of the problems and demanded restitution?


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