Is Laurentian Bank a Safe Long-Term Dividend Play?

Canadian banks have traditionally been held as excellent long term investments, in part due to the oligopolistic nature of the Canadian financials space, as well as the relative safety Canadian banks have shown, compared to their global peers.

In the case of Laurentian Bank (TSX:LB), a smaller regional player in the Canadian financials space, greater attention has been paid to the lender’s dividend, given the unique risk profile of Laurentian surrounding newfound concerns about mortgage quality.

Late last year, Laurentian found through an internal audit that mortgages which the company originated did not meet documentation and eligibility requirements, forcing the bank to buy back more than $300 million worth of mortgages from a third party.

During the company’s most recent earnings release, management reiterated the stance that this mortgage origination issue will not impact the company’s clientele and that the issue should be fully resolved by the end of the year.

That being said, the market has spoken, attaching a higher risk premium to Laurentian (and by default, increasing the security’s dividend yield). Currently, Laurentian’s dividend yield is hovering around 5.3%.

Laurentian’s very high yield (higher than each of the Big Six banks currently) is compelling for income investors or those relying on dividend growth to fund retirement.

The company’s most recent quarterly dividend increase to $0.64 per share came on the back of strong earnings, supported by improving sentiment in the marketplace for Laurentian’s services.

Invest wisely, my friends.