Royal Bank and Bank of Montreal now generate a significant portion of their earnings in the U.S.

The recent changes to the U.S. tax code hurt their latest earnings. Still, going forward, the lower tax rates should spur higher earnings for their U.S. operations. That will give each more cash to keep raising its dividend.

BANK OF MONTREAL $102 (Toronto symbol BMO; Income-Growth Dividend Payer Portfolio, Finance sector; Shares outstanding: 642.5 million; Market cap: $65.5 billion; Dividend yield: 3.6%; Dividend Sustainability Rating: Highest; www.bmo.com) is Canada’s fourth-largest bank, with assets of $727.9 billion (as of January 31, 2018).

Canadian retail banking operations supply 42% of the bank’s earnings, while the U.S. branches contribute 20%. Bank of Montreal gets another 20% of its earnings from its capital markets operations, which sell brokerage and securities-trading services. The remaining 18% of earnings comes from wealth management services.

The bank last raised its quarterly dividend by 3.3% with the February 2018 payment. Investors now receive $0.93 a share instead of $0.90. The new annual rate of $3.72 yields 3.6%.

Recent changes to the U.S. tax code, which cut the corporate income tax rate from 35% to 21%, have hurt the value of Bank of Montreal’s deferred tax credits (they let the bank lower its future tax bill). As a result, the bank had to write down that asset by $425 million (Canadian).

If you disregard that charge and other unusual items, Bank of Montreal earned $1.42 billion, or $2.12 a share, in the quarter ended January 31, 2018. That’s down 7.1% from $1.53 billion, or $2.28 a share, a year earlier. Revenue improved 5.1%, to $5.68 billion from $5.41 billion.

The bank will probably earn $8.70 a share in 2018. The stock trades at just 11.7 times that estimate.

Bank of Montreal is a buy.

ROYAL BANK OF CANADA $101 (Toronto symbol RY; Income-Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $141.4 billion; Dividend yield: 3.7%; Dividend Sustainability Rating: Highest; www.rbc.com) is Canada’s largest bank with assets of $1.28 trillion.

Starting with the May 2018 payment, the bank raised its quarterly dividend by 3.3%, to $0.94 a share from $0.91. The new annual rate of $3.76 yields 3.7%.

Royal continues to profit from its November 2015 purchase of Los Angeles-based City National Bank. That firm lends to wealthy individuals and businesses in the entertainment, technology and health-care industries. The bank paid $5.5 billion U.S. in cash and shares for City National.

Revenue in the fiscal 2018 first quarter, ended January 31, 2018, improved 12.3%, to a record $10.8 billion from $9.6 billion.

Royal set aside $334 million to cover potential bad loans in the latest quarter, up 13.6% from $294 million a year earlier. That’s due to higher projected losses on loans at its capital markets division.

Overall earnings fell 0.5%, to $3.01 billion from $3.03 billion a year earlier. But due to fewer shares outstanding, earnings per share gained 2.0%, to $2.01 from $1.97.

Like Bank of Montreal, the new U.S. tax rules forced Royal to write down the value of its deferred tax credits. If you exclude that charge, it earned $3.2 billion, or $2.13 a share, in the latest quarter. However, the bank expects to gain from the U.S. tax cuts. They will add $250 million to Royal’s annual earnings, starting in fiscal 2018.

The bank will likely earn $8.39 a share for fiscal 2018, and the stock trades at 12.0 times that forecast. Royal also intends to repurchase up to 30 million of its shares by February 26, 2019. That large buyback equals roughly 2% of the total outstanding.

Royal Bank is a buy.