Friday, January 4, 2019

Bank of Montreal

Sound bite for Twitter and StockTwits is: Dividend Growth Bank. This bank has had fairly consistent growth over the longer term. I bought in 1983 but have only followed it on Quicken since 1987. Since 1987 have earned a total return of 15.395 per year. Total return consists of capital gains and dividends. See my spreadsheet on Bank of Montreal .

I own this stock of Bank of Montreal (TSX-BMO, NYSE-BMO). I am following this stock because I own it. When I bought this stock in 1983, I thought it was the best bank stock to buy at that time.

When I was updating my spreadsheet, I noticed growth has been fairly consistent over time. All banks had a hard time in 2008 and this is showing up in growth over the past 10 years. Dividend increases were in the 7% range except for the last 5 and 10 year periods. For these periods the growth was 2.88% and 4.96%. Dividends were flat from 2009 to 2012 inclusive. The financial year ends in October every year.

Dividend yields are in the good range and the growth is in the low range. The current dividend yield is 4.43%, with the 5, 10 and historical medians at 4.10%, 4.38% and 4.47%. Dividend growth is below 8%, so it is low. See the chart below.

They can afford their dividends. The Dividend Payout Ratio for 2018 is 45.5% with 5 year coverage at 47%. The DPR for CFPS is $40% in 2018 with 5 year coverage at 54%.

The expectations for debt ratios are different for banks. You do not judge the debt against the market cap but to the assets the bank has to cover the debt. For 2018 that ratio is 0.91. Analysts ignore the Liquidity Ratio for banks. A good Debt Ratio is at 1.04 and above. Since 2008 the Debt Ratios for banks have been running higher and this bank has a Debt Ratio of 1.06. Leverage and Debt/Equity Ratios for banks are in the double digits and this bank has them at 16.93 and 15.93.

The Total Return per year is show below for years of 5 to 35 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

From the chart below, you can see that shareholders have done well under this bank. The except is the 15 year duration. At that time the Dividend yield was unusually low at just 2.72, which is some 39% below the historical median. The P/E Ratio was fine at 15.55 which was above the 5 and 10 and historical P/E Ratios of 11.42, 11.38 and 11.62. The P/B Ratio was 2.16 which is some 42% above the 10 year median. The P/S Ratio was 2.66 which was some 4% above the 10 year median.

Years Div. Gth Tot Ret Cap Gain Div.
5 4.96% 9.05% 4.72% 4.33%
10 2.88% 17.56% 11.06% 6.51%
15 7.04% 7.51% 3.47% 4.04%
20 7.47% 9.71% 5.45% 4.26%
25 7.91% 12.89% 7.75% 5.15%
30 6.92% 15.01% 8.85% 6.15%
35 5.96% 11.67% 7.60% 4.08%


The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.26, 11.42, 12.77. The corresponding 10 year ratios are 10.17, 11.38 and 12.69. The corresponding historical median ratios are 10.52, 11.62 and 13.54. The current P/E Ratio is 10.20 based on a stock price of $90.21 and 2019 EPS estimate of $8.84. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of $113.47. The 10 year low, median, and high median Price/Graham Price Ratios are 0.75, 0.84 and 0.95. The current P/GP Ratio is 0.80 based on a stock price of $90.21. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 1.45. The current P/B Ratio is 1.39 based on Book Value of $41,387M, Book Value per Share of $64.73 and a stock price of $90.21. The current P/B Ratio is some 3.9% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get an historical median dividend yield of 4.47%. The current yield is 4.43% based on a stock price of $90.21 and dividends of $4.00. The current yield is 0.8% below the 10 year historical median yield. This stock price testing suggests that the stock price is relatively reasonable and around the median.

The 10 year median Price/Sales (Revenue) Ratio is 2.56. The current P/S Ratio is 2.48 based on 2019 Revenue estimate of $23,219M, Revenue per Share of $36.32 and a stock price of $90.21. The current ratio is 2.9% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

The P/E Ratios are remarkably stable over time, but it is only the P/E ratios that says that the stock price is relatively cheap. All the rest put it in the reasonable and below the median except the yield which is around the median. The testing for yield is probably affected by the flat dividends between 2009 and 2012 inclusive.

When I look at analysts’ recommendations, I find Strong Buy (2), Buy (4) and Hold (8) recommendations. The consensus would be a Buy recommendation. The 12 month stock price is $111.00. This implies a total return of $27.48% with 23.05% from capital gains and 4.43% from dividends.

This stock is reviewed on Market Beat with information on such things as analyst recommendations and favorable news coverage. Dennis Golden on MS Daily says that BMO has a Neutral (Hold) rating from analysts. Ambrose O'Callaghan on Bay Street said this bank has fallen into oversold territory. Prosper Bakiny on Motley Fool says this bank is making solid strides. See what analysts are saying about this bank on Stock Chase. They think the bank is ok but like other Canadian banks better generally.

Bank of Montreal is a diversified financial services provider based in North America, operating four business segments: Canadian P&C banking, U.S. P&C banking, wealth management, and capital markets. Its web site is here Bank of Montreal .

The last stock I wrote about was about was Metro Inc (TSX-MRU, OTC-MTRAF) ... learn more. The next stock I will write about will be Royal Bank of Canada (TSX-RY, NYSE-RY) ... learn more on Monday, January 7, 2018 around 5 pm.

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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

2 comments:

  1. nice Writeup Susan.

    Bmo was my target to buy this month but looking forward to seeing what you say about royal.

    keep it up
    cheers

    ReplyDelete
  2. Hi Susan,
    Why do you think the consensus is a Buy and not a Hold?
    Thanks,
    MG

    ReplyDelete