Want Rock-Steady Dividends for Life? Buy This 1 Bank Stock Right Now

Intelligent investing is the call of the times. For rock-steady and life-long income, dividend pioneer Bank of Montreal stock should be the top-of-mind choice of Canadians.

| More on:

Have you read the news that the war chests of Canada’s Big Six banks are filled to the brim? Income investors should be happy with this development, because the banks need to deploy the excess capital. One of the possible options is to increase dividends.

After Q3 fiscal 2021 (quarter ended April 30, 2021), the total excess in common equity tier 1 (CET1) capital is $40.1 billion. When the coronavirus spread like wildfire in 2020, the Office of the Superintendent of Financial Institutions (OSFI) wanted the banks to have shock absorbers and suspend dividend increases and share buybacks.

Right now, OSFI has lifted restrictions, and banks are free to use the excess funds as they deem fit. If you yearn for rock-steady dividends for life, the logical pick is Bank of Montreal (TSX:BMO)(NYSE:BMO). The bank stock’s dividend track record is longer than any dividend payer on the TSX.

Impact on business divisions

Like its industry peers, dividend pioneer BMO had to increase its provision for credit losses (PCLs) in 2020 because of a weak economic outlook. Delinquencies could rise to record highs due to the health crisis.

Canada’s fourth-largest bank increased its PCL by 535% to $1.1 billion in Q2 fiscal 2020 versus Q2 fiscal 2019. The move meant a sacrifice in earnings. BMO’s revenue and net income fell 15% and 54% as a result. Its CEO, Darryl White, said then, “We have a strong capital and liquidity position, a disciplined operating plan and very good momentum.”

He added that the strength and resilience of BMO’s overall diversified business model have been tested and should perform well through the challenges. White’s statements are valid and accurate. Despite two World Wars, the Great Depression, and the 2008 financial crisis, BMO did not stop or miss paying dividends.

Longest record and counting

The $82.25 billion bank started sharing some of the profits with shareholders through dividend payments. It’s now 192 years and counting. Suppose you invest today; the share price is $127.06 (+34% year to date). The current dividend yield is 3.3%, which should be safe and sustainable given the 46.5% payout ratio.

BMO seems undervalued, too, with its 13.95% trailing P/E ratio. Besides the potential dividend increase, market analysts predict the price to climb to $150 (+18%) in the next 12 months.

Rosy picture in 2021

BMO’s financial position at the close of Q2 fiscal 2021 is rock-solid. The bank has $6.9 billion in excess CET1 capital. If you apply the regulatory floor of 9%, not the 11% industry-standard floor, the amount would be $12.6 billion. The anticipated overflow in the delinquency bucket did not materialize.

This year, BMO plans to build out its healthcare franchise through BMO Capital Markets. The goal is to deepen its expertise and expand services in healthcare (biotech and pharmaceuticals) across the enterprise. The sector has the potential to drive growth.

Call of the times

The pandemic isn’t over, although the widespread distribution of vaccines could jumpstart the economy’s reopening. Meanwhile, the call of times is intelligent investing. If you’re creating passive income or building wealth over the long term, prioritize the quality and safety of dividends.

Asset diversification can also mitigate the risks. However, BMO is a no-brainer choice for dividend longevity and money growth if you prefer a one-stock strategy.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »