Bank Of Montreal: Bullish In The Wake Of Its Recent Dividend Increase

May.29.14 | About: Bank of (BMO)


On Wednesday, May 28, Bank of Montreal announced it would be increasing its quarterly dividend by 2.7%.

Comparatively speaking, Bank of Montreal is trading at 11.2x forward earnings, whereas two of its peers are trading at just over 11.6x their respective forward earnings.

Recent trend behavior signals a buying mode for most long-term investors.

As an investor whose portfolio consists mostly of income-generating stocks, dividend-related events are always something I tend to keep a close eye on, especially since they have a tendency to influence my decision in terms which stocks I should keep on my radar and which ones I should not. With that said, and in the wake of its latest dividend increase, I wanted to highlight several reasons why I've chosen to stay bullish on shares of The Bank of Montreal (NYSE:BMO).

Bank of Montreal Increases Its Quarterly Dividend 2.7%

On Wednesday, May 28, Bank of Montreal announced a quarterly dividend increase of $0.02/share, which brings its upcoming dividend payout to $0.78/share. It should be noted that the increase will be paid on August 26 for shareholders on record as of August 1. This boost represents a 2.7% increase from its prior dividend of $0.76/share, which was paid to shareholders on May 27.

Recent Performance & Trend Behavior Should Indicate A Continued Uptrend

On Wednesday, shares of BMO, which currently possess a market cap of $45.49 billion, a forward P/E ratio of 11.22, and a dividend yield of 4.43% ($3.12), settled at a price of $70.42/share.

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Based on their closing price of $70.42/share, shares of BMO are trading 1.87% above their 20-day simple moving average, 3.99% above their 50-day simple moving average, and 7.82% above their 200-day simple moving average. It should be noted that these numbers indicate a short-term and mid-to-long term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors.

Comparative Forward P/E Ratios Set Bank of Montreal Apart From Its Peers

Although the above referenced numbers indicate a long-term uptrend for the company's stock, I actually think BMO's share price of $70.42/share offers investors a considerable point of entry. Why? Well, I think that when shares are trading at a much better forward P/E ratio than a number of their sector-based peers, a great buying opportunity is created for most long-term investors.

As of Wednesday's close, Bank of Montreal's forward P/E ratio of 11.22 was slightly lower than the forward P/E ratio of both Toronto-Dominion Bank (NYSE:TD) (forward P/E ratio of 11.62 as of 5/28) and Royal Bank of Canada (NYSE:RY) (forward P/E ratio of 11.63 as of 5/28), which signals a greater level of affordability for those who may be looking to establish a position in Bank of Montreal, especially when compared to a number of its peers.

Strong Q2 Numbers

On Wednesday, and before all three major indexes opened for trading, Bank of Montreal reported the results of a very solid second quarter. Analysts had been expecting the company to earn $1.53/share on revenue of $4.08 billion; however, BMO impressed both investors and analysts when the company reported earnings of $1.63/share on revenue of $4.04 billion (which was up 3.9% on a year-over-year basis).

With that said, there were a number of things that drove results higher. For example, adjusted net income increased 14% on a year-over-year basis, with strong growth in both loans and deposits (up 9% and 10%, respectively). The bank also managed to reduce its provisions for credit-related losses by a very impressive margin of 13%, while its operating expense ratio decreased by 1.6 percentage points.


For those of you who may be considering a position in Bank of Montreal, I strongly recommend keeping a close eye on the company's recent trend performance, its ability to continue to maintain its dividend, and its ability to continue to enhance shareholder value over the next 12-24 months, as each of these factors could play a role in the company's long-term growth.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.