Bank of Montreal (TSX:BMO) Is Canada’s Best Bank Stock

It was a rough earnings season for Canada’s Big Bank stocks. Lost in the pessimism, was a solid quarter by the Bank of Montreal (USA)(TSX:BMO).

| More on:

Well, that was unusual. As of writing, all of Canada’s Big Five banks have reported first-quarter earnings, albeit the results weren’t anything to get excited about. In fact, I dare say that the first quarter was a disappointment across the board. Four of the five either missed on earnings, revenue or both, with Royal Bank of Canada (TSX:RY)(NYSE:RY) being the exception. Royal Bank met earnings estimates and beat on revenue.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) missed on earnings, but beat on revenue and Bank of Montreal (TSX:BMO)(NYSE:BMO) achieved the opposite. Unfortunately for Bank of Nova Scotia (TSX:BNS)(NYSE:CM) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) shareholders, both missed on the top and bottom lines. This may also mean that these two banks could continue to underperform the group as they have over the past few years.

Which bank had the best quarter?

Looking beyond the headlines, I am giving the edge to the Bank of Montreal. For starters, it is important to take its revenue miss into perspective. Revenue of $5.59 billion missed by $20 million, or a mere 0.3%. In my opinion, the miss is insignificant as revenue still climbed 6% year-over-year.

Second, Bank of Montreal was the only bank to post double-digit (10%) earnings per share (EPS) growth. Royal Bank was a close second at 7%, while the remainder either posted low single-digit or negative earnings growth. Thanks to its outperformance, it is the only one who didn’t post negative return on equity growth as compared to the first quarter of 2018. Further, the bank was one of the few whose provisions for credit losses actually dropped year over year.

The bank’s strong quarter was led by its U.S. personal and commercial (P&C) banking business. Adjusted segment net income grew by 42% over the last year’s first quarter. As was the case with all banks, the company’s weakest segments were its Capital Markets (-9.9%) and Wealth Management (-3.3%) segments. This is not surprising given the poor performance of the equity markets this past fall.

Which bank had the worst quarter?

This is a toss-up between the Bank of Nova Scotia and CIBC. Negative growth was prevalent in both reports. Bank of Nova Scotia saw adjusted EPS drop 6.4% and ROE drop by 270 basis points. Similarly, Canadian Imperial’s adjusted EPS dropped by 5% and its ROE dropped for 18.8% to 16% (280 basis points).

Both companies also saw a significant increase in credit losses. CIBC’s Q1 provision for credit losses (PCL) jumped by 120% to $338 million from $153 million. It had a higher rate of imparted loans in its Canadian Commercial Banking, Wealth Management and Capital Markets segments. The Bank of Nova Scotia saw PCL climb 26% to $688 million, the majority of which came from its Canadian Banking and International Banking segments.

Foolish takeaway

Although one quarter does not make a trend, there was weakness across the entire sector. However, I am still bullish on the sector as we have seen more stability in the markets, which should lead to an industry-wide rebound in the Capital Markets and Wealth Management segments next quarter.

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 mlitalien owns shares of BANK OF MONTREAL and TORONTO-DOMINION BANK. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

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

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »