Review of dividend increases of cantonal banks in 2019

Cantonal banks are relatively defensive investments, most of which offer generous dividends. Their conservative business model, focused almost entirely on the Swiss market, makes them much more stable and predictable than their larger counterparts CS and UBS.

The stock prices of the cantonal banks are generally more like quiet streams than meandering torrents. Finally, their dividends are generally very safe and it is extremely rare to see a distribution reduction from a cantonal bank.

In short, these are investments well suited to a passive investor looking for stable and generous income, rather than to a speculator looking (in vain) for large capital gains on prices. We are a long way from biotechs!

I found it interesting to review the dividend changes announced this year by the cantonal banks (including Valiant which is very close to a cantonal bank in its business model).

Here are the results:
- BCGE: +17.2%
- BCVN: +6.1%
- BEKN: +21.2%
- BLKB: unchanged
- BSKP: unchanged
- GLKB: +11.1%
- GRKP: unchanged
- LUKN: +4.2%
- SGKN: unchanged (excluding previous year's jubilee dividend)
- TKBP: +1.8%
- Valiant: +10%
- WKBN: +6.3%
- ZG: +10%

On average, we see that these 13 companies have increased their dividend by 6.8% this year, which is excellent growth for such defensive institutions, especially since most of them already offer rather high dividends to begin with. The cherry on the cake is that no institution has announced a dividend cut!

If I'm not mistaken (I haven't been able to get my hands on this figure), this is much more than the average increase in dividends in Switzerland in recent years, which must be around 3 or 4%.

But can we buy all these regional banks with our eyes closed? Certainly not, because the valuation of the cantonal banks is rather dissuasive overall at the moment and, in my opinion, most of them are not worth buying at current prices.

One should also be careful not to be overexposed to cantonal banks, and not only for diversification reasons: The abolition of the rental value tax (which could come into force in 2022-23) should encourage many property owners to repay their mortgage debt more quickly than expected, which would mean a significant loss of income for banks. The medium-term outlook is therefore probably not as rosy as one might think...

If you still want to get your hands on a few titles, here is my assessment as of mid-March 2019:

- I recommend for purchase: BCGE, GLKB, LUKN, Valiant.

- I am neutral on: BCVN, BLKB, GRKP, WKBN, ZG.

- I am negative on: BEKN, BSKP, SGKN, TKBP.