Bank of Montreal

Sound bite for Twitter and StockTwits is: Dividend Growth Bank. The stock price is probably reasonable. I have done well with this bank over the years. There is some insider buying. Dividend yields are often in the 4% range. 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 only tracked it since 1987 in Quicken. I have a return of 15.21% per year with 8.55% from capital gains and 6.86% per year from dividends.

When I was updating my spreadsheet, I noticed I also looked at this stock for long term good returns. If you bought shares in December 1988, 32 years ago for $1,000, you would have bought 142.86 shares. By December 2020 you would have BMO shares worth $13,825.99 and have collected $8,895.89 in dividends. Not as good as for Metro, but still fine. The 30 year return on this stock is 15.69% per year with 9.00% per year from capital gains and 6.69% per year from dividends.

The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.38%. The 5, 10 and historical dividend yields are also moderate at 4.14%, 4.29% and 4.47%. The dividend growth is low (below 8% per year) with dividend growth at 5.51% per year over the past 5 years. See also the chart below for other durations. The last dividend increase was for just 2.9% in 2020.

The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 is 56% with 5 year coverage at 48%. The DPR for CFPS is 40% with 5 year coverage at 33%. The DPR for Free Cash Flow is negative in 2020 with a 5 year coverage at 27%. (Site do not agree on FCF.)

Debt Ratios are fine. This is a bank, so we check that they have assets to cover their liabilities. Their Debt/Assets Ratio is fine at 0.95. Liquidity Ratio for banks doesn’t matter. The Debt Ratios for banks should be 1.04 or above and this bank has one of 1.06 currently. Leverage and Debt/Equity Ratios are fine for a bank at 16.77 and 15.77.

The Total Return per year is shown below for years of 5 to 37 to the end of 2020. 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 chart below.

From	Years	Div. Gth	Tot Ret	Cap Gain	Div.
2015	5	5.51%	8.79%	4.39%	4.40%
2010	10	4.16%	9.93%	5.35%	4.59%
2005	15	5.63%	7.70%	3.49%	4.21%
2000	20	7.45%	8.78%	4.61%	4.17%
1995	25	7.79%	13.08%	7.60%	5.48%
1990	30	7.15%	15.69%	9.01%	6.69%
1985	35	6.34%	12.10%	7.16%	4.95%
1983	37	5.99%	12.80%	7.41%	5.39%

The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.05, 11.12 and 12.61. The corresponding 10 year ratios are 10.06, 11.23 and 12.44. The corresponding historical ratios are 10.51, 11.38 and 13.50. The current P/E Ratio is 11.51 based on a stock price of $96.78 and EPS estimate for 2021 of $8.41. This stock price testing suggests that the stock price is relatively reasonable but above the median.

The Total Return per year is shown below for years of 5, 10, 15, 20, 25, 30 and 31 year periods, I find the following. For example, total return over the past 15 years is 7.70% per year, the starting P/E Ratio (the one from 15 years ago) was 12.46. From this point of view, a P/E Ratio is 11.51 would be fine for an 8% to 9% total return.

Year	Tot Return	Start P/E
5	8.79%	11.88
10	9.93%	12.10
15	7.70%	12.46
20	8.78%	12.09
25	13.08%	9.17
30	15.69%	6.93
35	12.10%	7.72
37	12.80%	11.71

I get a Graham Price of $122.53. The 10 year low, median, and high median Price/Graham Price Ratios are 0.73, 0.83 and 0.92. The current P/GP Ratio is 0.79 based on a stock price of $96.78. 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 1.41. The current P/B Ratio is 1.22 based on a stock price of $96.78, Book Value of $51,245M and a Book Value per Share of $79.34. The current ratio is 14% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I have to wonder if the Price/Cash Flow Ratio test is any good for this stock. Last year the Cash Flow was up 73%, but when I excluded working capital, the Cash Flow was down 37%. Last 12 months in Cash Flow seems unusual.

I get an historical median dividend yield of 4.47%. The current dividend yield is 4.38% based on dividends of $4.24 and a stock price of $96.78. The current dividend yield is 2% below the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get an historical median dividend yield of 4.29%. The current dividend yield is 4.38% based on dividends of $4.24 and a stock price of $96.78. The current dividend yield is 2% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.

The 10 year median Price/Sales (Revenue) Ratio is 2.50. The current P/S Ratio is 2.65 based on Revenue estimate for 2021 of $23,629M, Revenue per Share of $36.58 and a stock price of $96.78. The current ratio is 7% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.

Results of stock price testing is that the stock price is probably reasonable. The dividend tests show the stock price as reasonable but above and below the median. The P/S Ratio test shows that the stock price is reasonable but above the median. All the tests that I have done show the stock as reasonable and above or below the median.

Is it a good company at a reasonable price? All the major Canadian banks have been paying dividends for a very long time and mostly have been dividend growth stocks. If you are a Canadian, you should probably have a couple of Canadian Banks in your portfolio. I like dividend growth stocks that deliver Total Returns over the longer term at 8%. This bank mostly does this.

When I look at analysts’ recommendations, I find Strong Buy (3), Buy (1), Hold (8), and Underperform (2). The consensus would be a Hold. The 12 months stock price consensus is $100.80. This implies a total return of 8.53% with 4.15% from capital gains and 4.38% from dividends.

A few analysts on Stock Chase mention that BMO is not their favourite bank. Nicholas Dobroruka on Motley Fool give this bank as one of his top picks for 2021. He mentions that this bank has paid dividends for 190 years. A writer on Simply Wall Street finds this bank interesting because of rising earnings and insider buying. The executive summary on Simply Wall Street gives this bank 4 stars out of 5 and lists 3 rewards and no risks. Bloggers on Stock Trades review this stock.

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. The bank's operations are primarily in Canada, with a material portion also within the U.S. 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 Wednesday, January 06, 2020 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks January 2021.... learn more on Tuesday, January 05, 2021 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.

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