Thursday, January 10, 2013

Bank of Montreal

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. Since the year end has past, I would like to start first on my bank stocks, which have financial reporting years ending October 31st each year.

This was the last of the big banks to raise their dividends and they raised them only 2.9% at the end of 2012 financial year. There was no rise in dividends since 2008 and that means no dividend rises for almost 4 years. Dividends have increased over the past 5 and 10 years by 0.8% and 8.9% per year, respectively.

Over the long term there is nothing like banks in providing good dividends and good dividend increases. (See my article on my site dividend yields on original investments for an explanation of this concept.) I have had this stock for 29 years and my yield on my original investment is 40%.

The Dividend Payout Ratios are good for this bank as far as earnings go. The 5 year median DPR for earnings is 59%. However, for this bank cash flows have varied and have often been negative. You cannot get a fix on DPR for cash flow for this bank.

The total returns over the past 5 and 10 years to the end of December 2012 are 6.39% and 8.51%. The dividend portion of these returns is 4.83% and 4.66% per year and the capital gain portion is 1.56% and 3.86% per year over the past 5 and 10 years, respectively. The recent economic situation has not be good for banks.

The outstanding shares have been increasing at the rate of 5.47% and 2.83% per year over the past 5 and 10 years. They have increased due to business acquisitions, stock options and DRIPs.

The revenue for this bank has increased by 11.1% and 6.2% per year over the past 5 and 10 years. The revenue per share has increased by 5.3% and 3.3% per year over the past 5 and 10 years.

Earnings per share have grown quite nicely over the past 5 and 10 years at 8.4% and 8.7% per year. It is hard to get a fix on cash flow, but they have grown well over the past few years. (The 5 year running average CFPS has grown at 32% over the past 3 years.) However, both CF and CFPS have fluctuated over the years. The book value per share has grown well over the past 5 and 10 years at 8.5% and 7.3% per year.

Return on Equity has generally been very good. The ROE for the last financial year in October 2012 was 15.2% and it has a 5 year median value of 12.9%. The ROE on comprehensive income at 14.5% generally confirms the quality of the ROE on net income.

The Debt Ratio is 1.06, and this is normal for a bank. Their cash flow may fluctuate, but they seem to have enough cash to cover current liabilities and including dividends.

I must confess that I initially built my stock portfolio on bank and utility stocks. Banks have not been great since the 2008/2009 bear market, but I expect to earn good money from banks over the longer term. As far as BMO is concerned I would probably pick some other bank today if I was looking for a bank to invest in.

My main concern with BMO is their inability to generate positive cash flow.

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.

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