Is it a good company at a reasonable price? I think this is a great dividend growth stock. There are a number of ways of looking at this and I talk about several below. The price maybe reasonable, but could also be rather high. They also just raised the dividend by over 25% after having no increase last year.
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 also bought some for my Locked-In Account in 2008. I have made 15.56% per year on this stock with 9.38% from capital gains and 6.18% from dividends. I bought this bank in 1982, but have been only tracking it on Quicken since 1987, which is some 34 years. As far as I am concerned, it is a keeper.
When I was updating my spreadsheet, I noticed that if the company increases the dividend at the same rate as they used per year over the past 5 years of 4.76%, then in 15 years’ time, the dividend yield on your original investment would be at 7.85%.
| Div Yd | Years | At IRR | Div Inc |
|---|---|---|---|
| 4.93% | 5 | 4.76% | 26.19% |
| 6.22% | 10 | 4.76% | 59.24% |
| 7.85% | 15 | 4.76% | 100.95% |
For this stock I looked at a scenario of if you had purchased shares in December 1988, you could have bought 142.86 for $1,000. On December 31, 2021, 33 year later, those shares would be worth $19,456.10 and you would have collected $9,501.62 of dividends. Your total return would be $28,957.72.
When I was updating my spreadsheet, I also noticed the analysts were way off on what this bank would earn in 2021. The EPS estimate for 2021 was $8.41 but the EPS came in at $11.58.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 3.79%. The 5, 10 and historical dividend yields are also moderate at 4.10%, 4.21% and 4.46%. The dividend increases are low (below 8%) at 4.76% per year for the past 5 years. The last dividend increase is for 2022 and it is for 24.47%.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 is 37% with 5 year coverage at 45%. The DPR for Cash Flow per Share for 2021 is 28% with 5 year coverage at 31%. The DPR for Free Cash Flow for 2021 is 7% with 5 year coverage at 9%. This is a big disagreement between sites on what the FCF is. However, all show DPR coverage at acceptable rates.
Debt Ratios are fine. Since this is a bank, I am looking at Debt/Covering Assets Ratio and for 2021 it is good at 0.86. I do calculate a Liquidity Ratio, but this is not important for banks. The ratio for 2021 is 9.56. The Debt Ratio for 2021 is 1.06. A Debt Ratio of 1.04 and above is acceptable for banks.
The Total Return per year is shown below for years of 5 to 38 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 4.76% | 10.67% | 7.12% | 3.55% |
| 2011 | 10 | 4.24% | 13.55% | 9.32% | 4.23% |
| 2006 | 15 | 4.28% | 8.07% | 4.64% | 3.43% |
| 2001 | 20 | 6.88% | 10.99% | 6.89% | 4.09% |
| 1996 | 25 | 7.44% | 11.84% | 7.60% | 4.23% |
| 1991 | 30 | 7.18% | 13.67% | 8.77% | 4.90% |
| 1986 | 35 | 6.36% | 13.03% | 8.31% | 4.73% |
| 1983 | 38 | 5.84% | 13.08% | 8.17% | 4.91% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 9.97, 11.11 and 12.28. The corresponding 10 year ratios are 10.01, 11.12 and 12.44. The corresponding historical ratios are 10.51, 11.11 and 13.50. The current P/E Ratio is 11.15 based on a stock price of $140.54 and EPS estimate for 2021 of $12.60. The current P/E Ratio is very close to the median 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get a Graham Price of $150.76. The 10 year low, median, and high median Price/Graham Price Ratios are 0.73, 0.82 and 0.92. The current P/GP Ratio is 0.93 based on a stock price of $140.54. The current ratio is just above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.38. The current P/B Ratio is 1.75 based on a stock price of $140.54, Book Value of $51,965M and Book Value per Share of $80.18. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.38. The current P/B Ratio is 1.75 based on a stock price of $140.54, Book Value of $51,965M and Book Value per Share of $80.18. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.38. The current P/B Ratio also could be 1.61 based on a stock price of $140.54, Book Value per Share estimate for 2022 of $87.20 and Book Value of $56,518M. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 2.67. The current P/CF Ratio is 2.07 based on last 12 months Cash Flow of $44,049M, Cash Flow per Share of $67.96 and a stock price of $140.54. The current ratio is 23% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 4.46%. The current dividend yield is 3.79% based on dividends of $5.32 and a stock price of $140.54. The current dividend yield is 15% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 4.21%. The current dividend yield is 3.79% based on dividends of $5.32 and a stock price of $140.54. The current dividend yield is 10% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 2.50. The current P/S Ratio is 3.40 based on Revenue estimate for 2022 of $22,818M, Revenue per Share of $41.38 and a stock price of $140.54. The current ratio is 36% above the 10 year median ratio.
Results of stock price testing is that the stock price is? Well, it could be reasonable, but the stock price certainly is not cheap and it may be on the expensive side. The dividend yield tests are showing the stock price is reasonable, but above the median. The P/S Ratio test does not confirm this, but says the stock price is expensive. The current P/S Ratio is comparatively high. The P/B Ratio test, using the estimate for 2022 is showing the stock price as reasonable and above the median. The P/CF Ratio test is showing the stock price as cheap, but the problem is that most people think that cash flow is not important for financials, especially banks.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that the current Dividend Yield and current P/E Ratios are fairly good compared to past years of good growth.
In the following chart the capital gains for the 10 years to December 31, 2021 is 9.32% per year. The beginning yield was at 4.75%, and the P/E Ratio and the P/S Ratio were at 10.62 and 2.74. Does this chart change my opinion of the stock price? Not really. The P/S Ratio is still out of line, but dividend yield is not.
| # Years | Cap Gain | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 7.12% | 13.96 | 2.61 | 3.94% |
| 10 | 9.32% | 10.62 | 2.74 | 4.75% |
| 15 | 4.64% | 13.40 | 3.44 | 3.25% |
| 20 | 6.89% | 13.50 | 1.87 | 3.31% |
| 25 | 7.60% | 10.56 | 1.69 | 3.48% |
| 30 | 8.77% | 9.47 | 1.20 | 5.67% |
| 35 | 8.31% | 10.44 | 1.91 | 3.27% |
| 38 | 8.17% | 11.71 | 1.68 | 6.76% |
| current | 10.81 | 3.29 | 3.91% |
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (4), and Hold (5). The Consensus would be a Buy. The 12 month stock price consensus is $155.10. this implies a total return of $14.15% with 10.36% from capital gains and 3.79% from dividends based on a current stock price of $140.54.
Not all the analysts on Stock Chase like this Canadian Bank, but some do. They are monetizing this site and so you have scroll down a long way to get to recent comments unless you pay the site. Adam Othman on Motley Fool likes the fact that this bank has acquired the Bank of the West in California. Ambrose O'Callaghan on Motley Fool thinks this is the best preforming Canadian Bank. The bank recently announced on Newswire that it is going to repurchase up to 22.5 Million shares. This article from Reuters on Yahoo Finance talks about Canadian Banks buying banks in the US.
Bank of Montreal is a diversified financial-services provider based in North America, operating four business segments: Canadian personal and commercial banking, U.S. P&C banking, wealth management, and capital markets. The bank's operations are primarily in Canada, with a material portion also in 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 Friday, January 07, 2022 around 5 pm. Tomorrow on my other blog I will write about Something to Buy January 2022.... learn more on Thursday, January 06, 2022 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.
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