Wednesday, January 13, 2016

Bank of Montreal

Sound bite for Twitter and StockTwits is: Buy when price reasonable. Everyone should have some bank stock if you are serious in building a dividend growth portfolio. You should buy bank stocks when they are cheap or reasonable. See my spreadsheet on Bank of Montreal.

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 not regretted this buy. On my original purchase of stocks, after some 33 years I am earning 46.2% on my original share purchase price.

On this stock, I started a dividend reinvestment plan late in 1984 and this continued late in 1987. Under this plan, I could also buy extra shares each month so I invested $100 to $200 most months. Unfortunately I was tracking this stock by spreadsheet until I started to track it with Quicken in December 1987.

When looking at the data for dividends you will see why you buy dividend growth stocks for a portfolio to retire with. For me, I have had this stock for 33 years and I am making a return of 46% on my original purchase of this stock. What I did was to start a portfolio of stocks of increasing dividends. When I was first working I was reinvesting all my dividends. My portfolio grew until I had enough dividend income to live off of.

For this stock, if you bought it 5, 10 or 15 years ago and you paid a median price you would be earning 5.6%, 5.3% or 8.7% on your original purchase price. However, it all depends on when you purchase a stock. If you look at 10 year median values on this stock bought 5, 10 and 15 years ago, the dividend yields are 5.7%, 8% and 18% on your original purchase price if you paid a median price. So buy stocks when they are showing as reasonable using a number of ratios or the dividend yield. Stock will go through periods when they are underpriced and then through periods when they are overpriced.

When you hold stocks for the long term, they will have their ups and downs. This stock, as did all bank stocks, had problems after 2008. There was four years when dividends were flat between 2009 and 2012. This is why their dividend growth for the past 5 years is at 2.8%. The dividend growth over the past 10 years is better at 5.7%. On this stock I have collected $46.48 in dividends since December 1987 on shares I paid $7.28 for.

Typical of most banks is that they raise their dividends often more than once per year. The last increase was for 2016 at 2.4%. The total dividend increased in 2015 was for 5.9% and there was 2 dividend increases.

The bank can afford the dividends that they are paying. The Dividend Payout Ratios for EPS was 49% in 2015 and the 5 year median is 47.4%. The DPR for CFPS is 38.9% in 2015 and the 5 year median is 38.4%.

The outstanding shares have increased by 2.6% and 2.5% per year over the past 5 and 10 years. Even such a low rate can affect per share growth. Basically per share growth is lower per year by the increase in shares. For example, Revenue per share is up by 9.7% and 6.9% per year over the past 5 and 10 years. Revenue per Share is up by 7% and 4.3% per year over the past 5 and 10 years.

Debt Ratios are a bit different for banks. Only the Debt Ratio really counts and anything over 1.04 is fine for a bank. At the moment banks have higher than historical debt ratios and this bank at a Debt Ratio of 1.07. Banks also have higher Leverage and Debt/Equity Ratios than other sectors. This banks ratios are 16.08 and 15.08 and these are fine for a bank.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.07, 11.34 and 12.10. The corresponding 10 year ratios are a bit higher at 10.29, 11.99 and 13.36. The current P/E Ratio is 10.61 based on a stock price of $74.18 and 2016 EPS estimate of $6.99. This stock price testing suggests that the stock price is relatively reasonable and below the median.

At the beginning of the January, this stock was not showing as cheap based on the historical median dividend yield but now it is showing cheap on this basis with a stock price of $74.18. I get a Graham Price of $94.10. This is above the current stock price of $74.18.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. The most recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price consensus is $82.33. This implies a total return of 15.52% with 10.99% from capital gains and 4.53% from dividends.

In a recent article by Andrew Walker of Motley Fool, there are four reasons given to buy this bank. A recent report posted by Bonnie Powley on Zolmaz talks about shares of this bank and institutional investors. Some analysts comments are shown on Stock Chase.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

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 Bank of Montreal.

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.

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