The Bank
Bank of Montreal (BMO) is one of the "Big 5" banks in Canada, ranking number 4 in market capitalization behind Royal Bank (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), but ahead of Canadian Imperial Bank of Commerce (CM). All of the "Big 5" banks trade on both NYSE and TSX.
Dividend and Yield
According to the bank's website:
BMO Financial Group is the longest-running dividend-paying company in Canada. BMO's policy is to pay out 40% to 50% of its earnings in dividends to shareholders over time.
BMO currently pays CDN $2.88 (~$2.92 USD) per share, yielding 4.61% at the closing price of $61.19 CDN ($62.10 USD). Compare this to JP Morgan (JPM), Goldman Sachs (GS), Wells Fargo (WFC) and PNC Financial (PNC), which are yielding half as much as BMO.
Dividend Growth
BMO has maintained a dividend payout of $2.80 CDN (~$2.84 USD) per year since late 2007. Recently, BMO raised its dividend to $2.88 CDN (~$2.92 USD) per year on August 28, 2012.
| Year | Dividend (CDN) | YOY Dividend Growth |
|---|---|---|
| 2008 | $2.80 | N/A |
| 2009 | $2.80 | 0% |
| 2010 | $2.80 | 0% |
| 2011 | $2.80 | 0% |
| 2012 | $2.80-$2.88* | 2.86% |
* Dividend increased in November 2012
Historical Yield
Due to the market crash in 2008-2009, the yield of BMO surged to 12+% when the stock price hit a low of $19.32 USD. Fortunately, since dividends were not cut, if you bought at this time you would be sporting a double-digit yield.
| Year | Price Range (USD) | Dividend | Yield Range |
|---|---|---|---|
| 2008 | 22.56-59.08 | 2.629 | 4.45%-11.65% |
| 2009 | 19.32-53.42 | 2.434 | 4.56%-12.60% |
| 2010 | 47.47-65.68 | 2.707 | 4.12%-5.70% |
| 2011 | 51.83-66.64 | 2.87 | 4.31%-5.54% |
| 2012 | 50.95-61.74 | 2.83 | 4.58%-5.55% |
EPS Growth
EPS has been steadily growing since it made the lows in 2009.
| Year | EPS | YOY EPS Growth |
|---|---|---|
2008 | 3.09 | N/A |
| 2009 | 2.86 | -7.4% |
| 2010 | 4.66 | 62.9% |
| 2011 | 5.30 | 13.7% |
| 2012 | 6.15 (Estimated) | 16.0% |
Payout Ratio
Payout ratio has been reduced back to the target 40-50% range, even after the recent increase in dividend.
| Year | Dividend | EPS | Payout Ratio |
|---|---|---|---|
2008 | 2.629 | 3.09 | 85.1% |
| 2009 | 2.434 | 2.86 | 85.1% |
| 2010 | 2.707 | 4.66 | 58.1% |
| 2011 | 2.87 | 5.30 | 54.2% |
| 2012 | 2.83 | 6.15 | 46.0% |
Technical Analysis
BMO is showing signs of over-bought with RSI hitting 67.49. It is currently well above the 30 week MA of $58.02, with a clear up-trend in its 30 week MA. There seems to be firm support at the $50 range, with a near-term support around $58. BMO is quickly approaching some resistance at $65.
(click to enlarge)
Conclusion
BMO has steadily raised its dividend for the past 20+ years. It is one of the highest yielding banks in Canada right now, with dividends firmly supported by its strong EPS growth. I would look for a pull-back to around the $57 level which will yield around 5%, or the mid-range of yield over the past 3 years. Given the temporary "fiscal-cliff" resolution and US debt ceiling limit, there will likely be some nice buying opportunity in 2 to 3 months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
