Seeking Alpha
Profile| Send Message|
( followers)  

The Bank

Bank of Montreal (NYSE:BMO) is one of the "Big 5" banks in Canada, ranking number 4 in market capitalization behind Royal Bank (NYSE:RY), Toronto-Dominion Bank (NYSE:TD), Bank of Nova Scotia (NYSE:BNS), but ahead of Canadian Imperial Bank of Commerce (NYSE: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 (NYSE:JPM), Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC) and PNC Financial (NYSE: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.

YearDividend (CDN)YOY Dividend Growth
2008$2.80N/A
2009$2.800%
2010$2.800%
2011$2.800%
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.

YearPrice Range (NYSEARCA:USD)DividendYield Range
200822.56-59.082.6294.45%-11.65%
200919.32-53.422.4344.56%-12.60%
201047.47-65.682.7074.12%-5.70%
201151.83-66.642.874.31%-5.54%
201250.95-61.742.834.58%-5.55%

EPS Growth

EPS has been steadily growing since it made the lows in 2009.

YearEPSYOY EPS Growth

2008

3.09N/A
20092.86-7.4%
20104.6662.9%
20115.3013.7%
20126.15 (Estimated)16.0%

Payout Ratio

Payout ratio has been reduced back to the target 40-50% range, even after the recent increase in dividend.

YearDividendEPSPayout Ratio

2008

2.6293.0985.1%
20092.4342.8685.1%
20102.7074.6658.1%
20112.875.3054.2%
20122.836.1546.0%

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.

Source: Banks In The Great White North: Bank Of Montreal