Friday, January 9, 2015

Bank of Montreal 2

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.

When I look at insider trading I find some $35.5M of insider selling and $34.5M of net insider selling. Insider buying is minor at $1M. Insider selling is only at 0.07% of market cap and is therefore a relatively small number.

Outstanding shares were increased by some 2.133M shares for options last year. These options had a book value of $131M and this number of shares would have been worth around $173.2M at the end of October 2014. This number of shares is 0.33% of the outstanding shares and is a relatively small amount.

There is some insider ownership with the CEO having shares worth around $19.5M and an officer having shares worth around $16.2M. However, insider ownership is way below 1% and is therefore minor.

BMO does not have a mission statement per se, but they do claim their approach involves the following. It does cover main points for a mission statement.
  • Delivering value to our customers.
  • Creating opportunities for our employees.
  • Generating greater rewards for our shareholders.
  • Contributing to the well-being of the communities where we do business.
  • Integrating respect for the environment into our business growth strategies and practices.
The 5 year low, median and high median Price/Earnings Ratios are 10.51, 11.34 and 12.10. The corresponding 10 year ratios are close but cover a bigger range are 10.52, 12.22 and 13.66. The current P/E Ratio is 11.82 based on a stock price of $79.56 and 2015 EPS estimate of 6.73. This stock price test says that the stock is at a relatively reasonable price.

I get a Graham Price of $85.55. The 10 year Price/Graham Price Ratios are 0.82, 0.93 and 1.12. The current P/GP Ratio is 0.93 based on a stock price $79.56. This stock price test says that the stock is at a relatively reasonable price. On an absolute basis, a P/GP under 1.00 suggests a stock is cheap.

The 10 year Price/Book Value per Share Ratio is 1.59. The current P/B Ratio is at 1.65 based on a stock price of $79.56 and Book Value per Share of $48.33. The current P/B Ratio is only 3.5% higher than the 10 year ratio. The stock price test says that the stock is at a relatively reasonable price.

The only test to suggest that the stock price might be a bit high is looking at the dividend yields. The 5 year median dividend yield and the historical median dividend yield are at 4.69% and 4.62%, respectively. They are 14% and 13% above the current dividend yield of 4.02%. For a stock to be expensive, these yields would have to be above the current dividend yield by 20%. However, this test says that the stock price is still reasonable but in the higher end of this range.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform. The vast majority of the recommendations are a Hold and the consensus recommendation would be a Hold. The 12 month stock price consensus is $87.50. This implies a total return of 14% with 9.98% from capital gains and 4.02% from dividends.

In this article in the Financial Post, David Pett talks about BMO hiking the dividend despite missing earnings estimates because of a weak capital markets.

Sound bite for Twitter and StockTwits is: On most tests stock price seems reasonable. Dividend yields are still good and dividend increases are moderate. I have made a lot of money in banks in the past, but I doubt that the returns will be as good in the future. However, they can be a solid part of any portfolio. See my spreadsheet at bmo.htm.

This is the second of two parts. The first part was posted on Thursday, January 08, 2015 and is available here. The first part talks about the stock and the second part talks about the 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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

No comments:

Post a Comment