Friday, January 11, 2013

Bank of Montreal 2

I own this stock (TSX-BMO, NYSE-BMO). This was the first bank stock that I bought and I have had it since 1983. Since 1987 my return has been 15.86% per year with 6.42% from dividends and 9.44% from capital gains.

When I look at insider trading, I find $24.2M of insider selling and $24M of net insider selling. There is a small amount of insider buying by a director. Most of the insider selling is by officers (around $21.2M). The selling seems to be option related. There are lots of options outstanding. There are not only options, but Deferred Share Units, Restricted Share Units and Performance Share Units. The list of insiders with options just goes on and on as there are some 40 pages of this.

The CEO has $13.9M in shares and $102M in options. The CFO has $0.4M in shares and $34.6M in options. An officer has $0.4M in shares and $2.3M in options. A director has $0.7M in shares and $1.7M in options. CEO, CFO, other officers, subsidiary executives and directors all have options.

The 5 year low, median and high median Price/Earnings Ratios are 9.91, 12.14 and 13.77. The current P/E ratio is 10.5 and that is lower than the median value. This is based on a stock price $62.24 and a 2013 EPS of $5.93. (Analysts seem to be expecting earnings to trend down this year before trending up again next year.)

I get a Graham Price of $75.26. The 10 year low, median and high median Price/Graham Price Ratios are 0.87, 1.01 and 1.19. The current P/GP Ratio is 0.83 based on a stock price of $62.24. This suggests the stock price is relatively low.

The 10 year Price/Book Value per Share Ratio is 1.97 and the current P/B Ratio is 1.47. The current ratio is some 74% of the 10 year ratio and this suggests that the stock price is relatively cheap. The stock price is considered relatively cheap is the current ratio is 80% or less of the 10 year value.

The current dividend yield is 4.63% and the 5 year median dividend yield is 4.92% a value some 6% higher. For a stock to show a relatively cheap price, the current dividend yield needs to be significantly higher than the 5 year median. This test shows that the stock price is relatively towards the high side. However, the company has not been raising the dividend lately as it has in the past.

I think my tests by and large suggest that the stock price is relatively on the cheap side.

When I look at analysts' recommendations I find Buy, Hold, Underperform and Sell. The most recommendations are in the Hold category and the consensus recommendation would be a Hold. The 12 month consensus stock price is $63.70. This implies a total return of 7.97%, with 5.63% from dividends and 2.35% from capital gain.

Although analysts with a Buy recommendation has a 12 month stock price of $71 and this implies a 12 months total return of 18.7% with 5.63% from dividends and 14.07% from capital gains. There are lots of analysts following this stock and it is obvious they are of different opinions.

One analyst mentioned this was the worst performing Canadian bank last year and I have to agree with this assessment. However, other analysts see Canadian banks in great shape (compared to banks of other countries) and would buy any of the big 5 Canadian bank. The Seeking Alpha blog has a good item on this stock.

The Bank of Montreal is still dealing with their purchase of Marshall & Ilsley. The financial post has a recent article on this subject.

Personally, I intend to continue to hold this stock. Most of what I own is in my Trading Account, but I also have a small number of shares in my Locked-In RRIF.

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 or StockTwits.


  1. Hi Susan,
    You mentioned if you were going to buy a bank today this one wouldn't be the one you'd pick, so I'm curious which one you would buy now (and more importantly why) if you didn't have any?

    I have a big chunk of ZWB
    I bought it because I didn't think the banks would do much for a couple years and the yield was good but I'm not happy with it at all.

  2. I am in the process of reviewing banks now. I follow BMO RBC TD and BNS and I have started a spreadsheet on NBC. I am more pleased with the performance of my RBC and TD stocks than I am of my BMO stock.