Friday, January 10, 2014

Bank of Montreal

On my other blog I am today writing about my neighborhood dogs...continue...

I own this stock of Bank of Montreal (TSX-BMO, NYSE-BMO). When I bought this stock in 1983, I thought it was the best bank stock to buy at that time. I have only been tracking this stock on Quicken since 1987 and for this stock I have earned a return of 15.91% per year with 11.57% from Capital gain and 4.34% from dividends.

On my original purchase amount in 1983, 31 years ago, I am making a dividend yield of 42.6%. This is why you buy dividend growth stocks. I wrote about this subject here and the accompanying spreadsheet is here. No other stocks beat the banks as far as good dividends and good dividend increases go.

After the financial crisis of 2008, BMO was the last big Canadian Bank to restart dividend increases and only did so for the first dividend payable in their 2013 financial year (November 2012). So this stock had 5 years of level dividends. Over the past 10 years, the dividend growth is at 8.1% per year. For the 10 years prior to 2008, the growth in dividends was 12.27% per year.

The total returns on this stock stalled after 2008 because of declining stock price and lack of dividend growth. However, the stock has picked up over the past few years and the total return over the past 5 years is at 24.56% per year and over the past 10 years total return is 6.94% per year. Over these periods the return from capital gain was 17.77% and 2.84% per year and the returns from dividends was at 6.79% and 4.10% per year.

The outstanding shares have growth at the rate of 4.9% and 2.8% per year over the past 5 and 10 years. Shares have increased due to Share Issues, Stock Options, DRIP and exchange of shares of a subsidiary corporation. Shares have decreased due to buy backs.

Revenue per Share growth is not bad over the past 5 and 10 years at 4.6% and 3.1%. The picture changes a bit if you look at 5 year running averages and then growth is just 3% and 2.9%. EPS over the past 5 and 10 years look quite good at 10.3% and 6.2% per year. However, looking at 5 year running averages growth is just 2.9% and 5.9% per year over the past 5 and 10 years.

Why I look at 5 year running averages is because if you look at growth over exactly a 5 or 10 year period the growth you see might not tell you the whole story. Exactly 5 or 10 years ago can be a particularly good or a particularly bad year and you might get the wrong impression. For this stock, 5 years ago was 2008 and this is when the bank started to not do particularly well.

As far as cash flow goes, growth and annual changes are all over the place as bank's cash flows tend to fluctuate and they have years of negative cash flow. Few analysts even bother to talk about cash flows. There has been growth in cash flow over the past 4 years.

As far as Return on Equity goes, for most years the ROE is above 10%. The ROE for the financial year ending in October 2013 is 13.5% and the 5 year median is 12.9%. The ROE on comprehensive income is higher with the ROE at 15.5% and the 5 year median at 14.8%. So this is good.

As far as debt ratios goes, banks tend to be different that other companies. I do look at the Liquidity Ratio which I find currently at 3.72. However, few analysts bother with this. The Debt Ratio is 1.06 and is current typical for banks. Before 2008, this ratio used to run at 1.04 or 1.05. Both the Leverage and Debt/Equity Ratios tend to be very high for financial institutions and the current Ratios at 17.07 and 16.07 are better than some other banks and better than the 5 year medians on these ratios which are 19.67 and 18.67.

The growth on this bank is mediocre to good when looking at Revenue, Revenue per Share, EPS, Book Value per Share, Net Income and Total Return. Debt Ratios are normal for a bank and better than before 2008. See my spreadsheet at bmo.htm.

This is the first of two parts. Second part will be posted on Monday, January 13, 2014 and will be available here. This second report will talk about the current stock price.

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.

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,

    Thanks as always for the great analysis. Just wanted to point out that you've linked to your HSE spreadsheet instead of the BMO spreadsheet.

  2. Thanks! Great information. I was wondering what the longer term (10+ years) return on BMO had been. This kind of info is hard to find. Am I correct in thinking that BMO's return has exceeded the S&P 500 over the longer term?

    - Mark

  3. How many years are you thinking of? I have tracked it for 25 years from 1987 on quicken as I said in my opening remarks.

    For this stock I have earned a return of 15.91% per year with 11.57% from Capital gain and 4.34% from dividends.

    This is a very good return.