Friday, January 6, 2017

Bank of Montreal

Sound bite for Twitter and StockTwits is: Buy for income/cap gains. This stock is showing as relatively expensive with the Dividend Yield test. The rest of the test show it is relatively reasonable but above the median. Now may not be the time to buy this stock. 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. You would buy for income and some capital gains.

Dividend growth stock can deliver great returns over the longer term. For this stock which I bought in 1983 some 34 years ago, I am making a dividend yield of 47.8% on my original purchase price. Since 1983 dividends on this stock has grown at an average of 6% per year or a total of 618%. Dividend growth lately has been lower. Since dividends have restarted in 2013, 4 years ago, the average growth is 4.7% per year.

My quicken data is only from 1987. After my original purchase in 1983 I bought more stock under DRIP. I also purchase more shares in 2008 and 2013. So with quicken I can look at the stock I held in 1987 plus my other purchase. If I look at all the dividends I have received since 1987 and my cost of my three purchases, I have covered my purchase price of my shares by 173%.

Both these sets of data are important. Investors seldom just buy a stock once. Stocks are usually bought over a number of years like I bought BMO for my trading account.

This stock has a dividend yield that is moderate to good and dividend growth that is low. The current dividend is 3.60% based on dividends of $3.52 and a stock price of $97.81. This historical median dividend yield is 4.52% and the 5 and 10 year median dividend yields are 4.29% and 4.58%, respectively. Any dividend above 4% is a good dividend.

The long term dividend growth is at 6% as stated above. The growth of dividends over the past 5 and 10 years is at 3.7% and 4.1% per year. Part of the reason for the lower growth over the past 5 and 10 years is that dividends were level 2008 to 2012, inclusive. However for 2016 the dividends only grew by 4.35%. Good dividends with low growth can produce very good yields on your original purchase price over time.

This bank has kept the Dividend Payout Ratio for EPS with the generally accepted range for banks of between 40 and 55%. The DPR for the financial year ending in October 2016 is 48.55%. For the past 5 years the DPR for this bank is 47.48%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.05, 11.33 and 12.61. The corresponding 10 year values are 10.06, 11.63 and 12.97. The historical values are 10.51, 11.63 and 13.54. These are fairly stable. I get a current P/E Ratio of 12.90 based on a stock price of $97.81 and 2017 EPS estimate of $7.58. This stock price testing suggests that while the stock price may be relatively reasonable it is above the median.

I get a Graham Price of $101.57. The 10 year low, median and high median Price/Graham Price Ratios are 0.73, 087 and 0.99. The current P/GP Ratio is 0.96 based on a stock price of $97.81. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get a 10 year Price/Book Value per Share of $1.53. The current P/B Ratio is 1.62, a values some 5.4% higher. The current P/B Ratio is based on a stock price of $97.81 and BVPS of $60.49. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get a Dividend Yield of $3.60%. The historical median dividend yield is 4.52% a value some 50.4% higher. This current dividend yield is based on dividends of $3.52 and a stock price of $97.81. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Almost all are Hold recommendations and the consensus recommendation is a Hold. The 12 months stock price is $96.02. This is below the current stock price of $97.81 and implies a total return of 1.77% with 3.60% from dividends and a capital loss of 1.83%.

The money reporter on Daily Buy and Sell Advisor says that this is one of the top Financial stocks to buy. If you want advice on investment income from a variety of sources from GICs to stocks, this is a good report to buy. Linda Roger talks about this stock on Frisco Fastball. Note prices are in US$. Also see what analysts are saying on Stock Chase. Demetris Afxentiou of Motley Fool likes this stock because it has been paying dividends since 1829.

The last stock I wrote about was about was Bird Construction Inc. (TSX-BDT, OTC-BIRDF)... learn more . The next stock I will write about will be Royal Bank of Canada (TSX-RY, NYSE-RY)...learn more on Monday January 9, 2017 around 5 pm. .

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.


  1. Thank you for posting this BMO sheet. I like your style. I own a small position acquired last year. I have to admit I made the mistake of not understanding that buying through the Fidelity platform I was basing my decision on a purchase price in US but looking at the dividend which was being quoted in Canadian $. The yield on my cost of over 5% is still attractive to me but not the holy grail that I thought I had found. Lesson learned without losing money feels good.

    1. You have to be careful as some sites do post values in in different currencies without stating this. I have noticed this more in US sites on CDN stocks.

  2. Is there anything about BMO that is not on your spreadsheet! That is amazing work and seems to provide support for your decision making process on this stock going back several years and to the rationale at the time you first purchased BMO.

    1. I have values on my spreadsheet for BMO going back to 1983. For most stocks I like a minimum of 10 years of data.