Wednesday, December 15, 2010

Bank of Montreal

I have had BMO (TSX-BMO) since 1983. I have had this stock for approximately 27 years and I am making some 19% return in dividend payments each year on my initial investment. This may sounds good, but my Royal Bank stock has done much better where after owning it for some 15 years, I am making some 27.5% on my original investment. Some of this, of course, is eaten away by inflation over the years.

This bank has a good record of dividend increases. The growth in dividends over the past 5 and 10 years is at the rate of 8.6% per year and 10.8% per year, respectively. However, like all our Canadian Banks, this bank has not raised their dividend since 2008. Analysts also think that the first increases in dividends are going to come from TD Bank or Bank of Nova Scotia. No one mentions BMO as a bank to raise the dividends first.

This bank, as all Canadian Banks have suffered in this last recession. However, if you had invested in this bank 5 years ago, you would have made a 3 or 4% in total returns each year. The dividend income would have added around 4 to 4.5% per year to this total return. This means that stock price is still not, where it was 5 years ago. The total returns over the past 10 years would have been much better coming in at 10 to 12% in total returns with the dividend accounting for around 4.5% of this total return.

Most of the growth rates for this stock range from low to mediocre over the past 5 and 10 years. The growth for earnings over the past 5 and 10 years has been .5% (that is less than 1%) per year to 3.8% per year, respectively. This is not good. The best growth after dividend growth is book value growth and this has been, over the past 5 and 10 years at around 5% per year. Unfortunately, because of the lack of growth in earnings and cash flow, the payout ratios of dividends to earnings and cash flow has at times been probably too high over the past few years.

Their Asset/Liability ratios have been on average around 1.05 for the past 5 and 10 years, with the current A/L Ratio around 1.06. These ratios are rather typical for banks. The brightest spot has probably been the Return on Equity, with ROE for the financial year ending in October 2010 at 14.6% and a 5 year average ROE of 13.9%.

I have done well over the years with this bank, but other Canadian Banks have performed better. Tomorrow, I will look at what the analysts are saying about this bank.

BMO is a bank. They offer personal and corporate banking and wealth management services in Canada and US, which includes looking after banking, financing, investing, credit card and insurance needs. They offer mortgages and mutual funds and they offer full service and on-line brokerage services. They are international bank having banking in Canada and US. They have clients, corporate, institutional and governmental, in UK, Europe, Asia and South America. Its web site is here BMO. See my spreadsheet at bmo.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. That's so impressive! 27 years! In 27 years, you may have seen it all. Good thing you have this blog so we can learn from you. Anyhow, BMO no longer what it used to be. On a long term basis, your RBC has performed better - that's interesting. Thanks.