Why Bank of Montreal Is Down Over 2%

Bank of Montreal (TSX:BMO)(NYSE:BMO) is down over 2% following its Q3 earnings release. Should you buy on the dip? Let’s find out.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bank of Montreal (TSX:BMO)(NYSE:BMO), Canada’s fourth-largest bank, announced its third-quarter earnings results this morning, and its stock has responded by falling over 2% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity or a warning sign to avoid it for the time being.

The Q3 performance

Here’s a quick breakdown of 10 of the most notable financial statistics from BMO’s three-month period ended on July 31, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Net interest income $2,533 million $2,474 million 2.4%
Non-interest income $2,926 million $3,159 million  (7.4%)
Total revenue $5,459 million $5,633 million (3.1%)
Total revenue, net of claims, commissions, and changes in policy benefit liabilities (CCPB) $5,206 million $4,942 million 5.3%
Adjusted net income $1,374 million $1,295 million 6.1%
Adjusted earnings per share (EPS) $2.03 $1.94 4.6%
Total assets $708.62 billion $691.68 billion 2.4%
Deposits $473.11 billion $467.85 billion 1.1%
Net loans and acceptances $375.97 billion $364.13 billion 3.3%
Book value per common share $59.65 $58.06 2.7%

Should you buy BMO on the dip? 

The third quarter was decent at best for BMO, but it posted a very strong performance in the first nine months of 2017, with its revenue up 5% to $16.61 billion, its adjusted net income up 15.8% to $4.2 billion, and its adjusted EPS up 14.8% to $6.22. With these two things being said, I think the weakness in its stock is warranted, but I also think it represents a great buying opportunity for long-term investors for two fundamental reasons.

First, it’s undervalued. BMO’s stock now trades at just 11.3 times fiscal 2017’s estimated adjusted EPS of $7.97 and only 10.7 times fiscal 2018’s estimated adjusted EPS of $8.39, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 11.8. These multiples are also inexpensive given its current earnings-growth rate and its estimated 5.5% long-term earnings-growth rate.

Second, it has a great dividend. BMO pays a quarterly dividend of $0.90 per share, equal to $3.60 per share annually, which gives it a lavish 4% yield. It’s also important to note that its recent dividend hikes, including its 2.3% hike in May, have it on track for 2017 to mark the sixth consecutive year in which it has raised its annual dividend payment, and it has a target dividend-payout range of 40-50% of its adjusted EPS, so I think its very strong growth will allow this streak to easily continue into the late 2020s.

With all of the information provided above in mind, I think all Foolish investors should strongly consider using the post-earnings weakness in BMO’s stock to initiate long-term positions.

Should you invest $1,000 in Bank of Montreal right now?

Before you buy stock in Bank of Montreal, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bank of Montreal wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Asset Management
Dividend Stocks

How I’d Allocate $10,000 in 2 Canadian Growth Stocks for the Long Run

Both growth stocks offer a compelling mix of income, growth, and value, and I believe they can outperform over the…

Read more »

grow money, wealth build
Dividend Stocks

2 Dividend-Growth Stocks to Buy on the Pullback

These stocks have increased their dividends annually for decades.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

BCE Stock Analysis: A Smart Choice for Potential Value and Income

BCE stock has slipped to its June 2009 level amid Trump tariff uncertainty and intensity. Does the sharp dip provide…

Read more »

Person slides down a stair handrail
Dividend Stocks

Should You Buy Cargojet Stock at $70?

Cargojet stock might be down, but don't let that scare you off. It's still a long-term opportunity.

Read more »

Middle aged man drinks coffee
Dividend Stocks

3 Monthly Dividend Stocks to Buy and Hold Forever

Add these three TSX dividend stocks to your self-directed portfolio for reliable monthly passive income.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

How I’d Build an Income Portfolio With 3 TSX Stocks Paying Monthly Dividends

Focusing on these three monthly paying TSX dividend stocks can help you reinvest more frequently, enhancing overall returns.

Read more »

Dividend Stocks

How I’d Divide $15,000 Across My Top 3 TSX Stock Picks for Growth and Income

Got $15,000? Here are three TSX stocks that could provide ample dividend and capital returns in the coming years ahead.

Read more »

concept of real estate evaluation
Dividend Stocks

Canadian Real Estate Stocks: How I’d Navigate This Sector With $15,000 During The Pullback

A $15,000 investment split among these two undervalued Canadian defensive REITs could generate high income yields with capital gains upside

Read more »