Canada’s oldest bank is now North America’s eighth-largest bank following the completed acquisition of the Bank of the West in early February 2023. The Bank of Montreal (TSX:BMO) purchased the San Francisco-based bank for US$13.8 billion.
Because of its significant presence in three of the top five markets across the border and longest-running dividend track record on the TSX, every Canadian investor should own this Big Bank stock. At $114.58 per share, you can partake in BMO’s hefty 5.13% dividend yield.
Illustrious dividend payment history
BMO was founded in 1817, and since it started paying dividends in 1829, sharing profits with shareholders has never ceased. The dividend track record is 194 years and counting. The $82.1 billion bank also dislodged the Bank of Nova Scotia as Canada’s third-largest bank when it merged with Bank of the West.
The dividend pioneer deserves a place in any portfolio. Besides the unrivalled dividend payment history, the potential for long-term price appreciation and healthy returns is high.
The bank stock’s overall return in 50.8 years is 26,443.4%, while its 52-week high is $137.64. Market analysts’ 12-month average and high price targets are $129.75 (+13.2%) and $160.30 (+39.9%), respectively.
Profitable
The Canadian banking sector is a bedrock of stability. Like its industry peers, BMO is well-capitalized and profitable, regardless of the economic environment. The average net income in the last three fiscal years is $8.8 billion, although it could drop in fiscal 2023 due to higher provisions for credit losses (PCLs).
In Q3 fiscal 2023 (period ended July 31, 2023), reported net income rose 6.5% to $1.5 billion versus Q3 fiscal 2022. BMO’s PCL jumped 267.1% year over year to $492 million. On a year-to-date basis, the $2.8 billion net income is 72.3% lower compared to $10 billion a year ago.
BMO announced a 6% dividend hike from the prior year, payable in fiscal Q4 2023. If you invest today, the annual dividend per share is $5.88. So, 150 shares ($17,187) will generate $220.42 every quarter. Your investment will compound to $41,201.53 in 15 years if you reinvest the quarterly dividends.
“We continue to deliver solid financial results reflecting the strength, diversity and active management of our businesses in an evolving environment,” said BMO Financial Group’s CEO, Darryl White.
He adds, “Record revenue in Canadian Personal and Commercial Banking and contribution from Bank of the West drove good pre-provision, pre-tax growth this quarter, and our capital and liquidity position remains strong.”
White stressed that BMO is accelerating its efficiency initiatives and remains focused on dynamically positioning the bank for long-term growth. Disciplined expense and risk management should result in sustained profitability.
Stiffer headwinds
Robert Kavcic, Senior Economist and Director of Economics at BMO Capital Markets said, “The Canadian economy is struggling under the weight of inflation and higher interest rates, with growth expected to stagnate in 2024.”
While inflation dropped to 4% in August 2023 from 8.1% in June 2022, Kavcic adds that rising oil prices could complicate the inflation picture and add to the shock. Thus, Canadian investors need a reliable dividend payer to cope with inflation. The safe and logical investment choice is none other than BMO.
