January 13th, 2011 | 
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This article originally appeared on The DIV-Net January 6, 2011.
The Bank of Montreal (TSE:BMO), or BMO for short, is the 4th largest bank in Canada followed closely by CIBC. It operates in many segments of the financial industry like all of the other Canadian banks. It’s main operations are in Canada and the United States but it also has offices in 8 other international countries. Most recently, the Bank of Montreal made the purchase of Marshall & Ilsley (NYSE:MI) in a deal with 6.1 billions dollars. The purchase sent their stock price down 6.5% in fear of the sub-prime mortgage debt they were absorbing as they intend to cover all the TARP cost and repayment through the transaction. The drop in price has made BMO attractive form a dividend yield and growth perspective for the coming years.
Fact Sheet
A quick look at BMO gives us the details below:
- Stock Ticker: BMO on both the TSX and NYSE
- Market Cap.: 32.70B$
- P/E: 12.16 – The lowest of all the 5 major banks
- EPS: 4.75$
- Dividend Yield: 4.85%
- 52-Week Low: 51.11$
- 52-Week High: 65.71$
- 52-Week Range: 45.27$
Here is how BMO stock has performed in 2010. There has been a few buy opportunities in the year but the stock always recovers nicely. I consider this last drop a good entry point for a 4.85% yield.
Company Growth
Let’s look at the company’s dividend growth. Like many other Canadian banks, it has a steady dividend increase. In fact it had 14 increases in the past 17 years. Many of the years actually had 2 increases for the year. I am hoping to see an increase this year but it may be delayed due to their recent purchase of Marshall & Ilsley.
The payout ratio for BMO is above the norm for the banks at the moment with an 5 year average of 55%. The tendency is for the banks to have a 45%-50% payout ratio. There is a simple fix, increase the bank fees … the Bank of Nova Scotia (TSE:BNS) is doing it in February. A 20% bank fee increase goes a long way in generating revenues. BMO actually has lower fees compared with Scotia Bank. It’s at least 30% cheaper based on the future increase at Scotia Bank.
Its EPS growth is a little more sporadic. It showed a nice trend up until 2006 and then it started going down a little. 2010 is showing an improvement and we’ll need to monitor the growth for 2011 otherwise we may have to look at other banks with a more steady growth.
Competitors
The competitors are primarily the other Canadian banks. Here is a quick summary of the major banks in Canada. All of them are paying a good yield considering they are Canadian dividend aristocrat.
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This is how the banks did in 2010 when compared against each other. They tend to move together in general.
Thoughts
BMO is currently positioned for a good entry point. I would expect them to maintain their dividends even after their 6.1 billion dollars purchase of Marshall & Ilsley. In fact, I think they will manage to increase it either towards the end of the year or early in 2012. With the recent 6.5% drop in value, and their position to grow in the U.S., I see some good growth for the coming years along with some dividend increases. It should generate a good dividend yield over time.
Readers: Any interest in BMO?
Disclosure: As of writing, I owned BMO.
Disclamer: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk – see my full disclaimer for more details.
Awesome post! it seems the big banks are a part of everyone's portfolios.. they never have been for me until recently and BMO was the one I decided to pick up.
It's funny when you look at the product line of the bank and interest offerings on the various accounts, the 4.85% yield makes their stock a better option for your money then any of their services.
It's interesting that the Canadian banks appear to be picking up some cheap American assets. TD is HUGE in New Jersey. My wife and I go to New Jersey every summer (her family has a home there) and I laugh at the ads for TD: "America's Most Convenient Bank"
Passive, what can you tell us about this BMO acquisition?
I'm a big fan of BMO. Got a bunch of shares, and of course, like you, love the divis!
I own BMO but as a dividend growth investor I will not add to my position until I see dividend growth again. I believe 2007 was the las increase, and then the whole sub prime thing lit up.
I bought at a low of 26 a share when the world was coming to an end, and banks were gonna collapse. The yield was too good to pass up.
But unless BMO starts to increase the dividend again i will not hesitate to sell.
@Jaymus
Early 2009 was the best buy opportunity in years! And even now, their yield is decent and it should pick up after the build up their reserve. Consequently, they are also buying internationally which should provide growth and dividends. Compound growth is the name of the game with the banks for me.
I just recently bought some BMO on the recent dip. I want to add more to the position but it already recovered a bit
I'm sure there will be more buying opportunities int he future.
I love the dividend, and I agree with jaymus, the dividend offers you better return than any of their financial products lol!
I want to buy now BMO or TD….cannot really decide whay is better. BMO gives the best dividend and price is not too high , but TD IMHO the strongest bank right now
@gibor
I agree that TD is a superior bank at the moment. That's why its yield is a little less. It has a stronghold in the US and should be positioned to profit from the US economy recovery. That's why BMO also purchased a major asset in the states.
Not sure if you saw my TD analysis: http://www.thepassiveincomeearner.com/2011/01/dividend-yield-td-bank-tsetd.html
I currently have BMO mostly because TD is asking for a higher premium at the moment.
The Montreal bank is absolutely wonderfull. I had a great experience with staff and opening an account was a breeze, and the friendliness was impecable. Great job Bank of Montreal at turning this Montreal bank around. Things have definently improved since the headache it used to be a few years ago .
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