Is it a good company at a reasonable price? I have done well with this bank. All the big Canadian banks have done quite well over the long term. I do expect that they will not do as well in the future. In the past they have taken over Canadian Trust companies, Canadian stock companies, and got into insurance. They are now going international to grow. International banking, to me, seems more volatile than Canadian banking. The stock price is probably reasonable.
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.
When I was updating my spreadsheet, I looked at total growth and per year growth over the past 5 and 10 years for several items. This is what I found.
| Year | Item | Tot. Growth | Per Year |
|---|---|---|---|
| 5 | Revenue Growth | 51.44% | 8.65% |
| 5 | AEPS Growth | 62.13% | 10.15% |
| 5 | Net Income Growth | 153.03% | 20.41% |
| 5 | Cash Flow Growth | 70.46% | 11.26% |
| 5 | Dividend Growth | 45.17% | 7.74% |
| 5 | Stock Price Growth | 26.98% | 4.05% |
| 10 | Revenue Growth | 108.99% | 7.65% |
| 10 | AEPS Growth | 122.35% | 8.32% |
| 10 | Net Income Growth | 223.16% | 12.65% |
| 10 | Cash Flow Growth | -106.94% | -7.01% |
| 10 | Dividend Growth | 82.50% | 6.20% |
| 10 | Stock Price Growth | 112.62% | 7.26% |
If you had invested in this company in December 2012, for $1,034.62 you would have bought 17 shares at $60.86 per share. In December 2022, after 10 years you would have received $634.61 in dividends. The stock would be worth $2,085.22. Your total return would have been $2,719.83.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $60.86 | $1,034.62 | 17 | 10 | $634.61 | $2,085.22 | $2,719.83 |
If you had invested in this company in December 1992, for $1,006.25 you would have bought 92 shares at $10.94 per share. In December 2022, after 30 years you would have received $6,394.61 in dividends. The stock would be worth $11,284.72. Your total return would have been $17,678.72.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $10.94 | $1,006.25 | 92 | 30 | $6,394.00 | $11,284.72 | $17,678.72 |
This is one of my first stocks to buy. I have been tracking my stock via Quicken for 35 years and my Total Return per year is 15.26% with 8.65% from capital gains and 6.61% from dividends.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.54%. The 5, 10 and historical median dividend yields are also moderate at 4.10%, 4.12% and 4.38%. The dividend growth is low (below 8%) at 7.7% per year over the past 5 years. The last dividend increase was for 2023 and the increase was for 2.9%. However, this bank often increases dividends more than once in a year. The yearly increase in dividends between 2022 and 2023 is 11%.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2022 is 26% with 5 year coverage at 38%. The DPR for Adjusted Earnings per Share (AEPS) for 2022 is 39% with 5 year coverage at 42%. The DPR for Cash Flow per Share (CFPS) for 2022 is negative with 5 year coverage at 49%. The DPR for Free Cash Flow (FCF) for 2022 is 8% with 5 year coverage at 21%.
Debt Ratios are fine. Because this is a financial stock, I am looking at Long Term Debt/Covering Assets Ratio and for 2022 it is good at 0.84. The Liquidity Ratio is not important, but I calculate one anyway and I get a good ratio of 6.48. The Debt Ratio is 1.07 and this is fine for a bank.
The Total Return per year is shown below for years of 5 to 39 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 7.74% | 7.93% | 4.05% | 3.88% |
| 2012 | 10 | 6.20% | 11.70% | 7.26% | 4.44% |
| 2007 | 15 | 4.32% | 9.52% | 5.32% | 4.20% |
| 2002 | 20 | 7.51% | 9.76% | 5.54% | 4.22% |
| 1997 | 25 | 7.70% | 9.42% | 5.56% | 3.85% |
| 1992 | 30 | 7.85% | 13.92% | 8.39% | 5.53% |
| 1987 | 35 | 6.88% | 21.58% | 10.90% | 10.68% |
| 1983 | 39 | 6.20% | 12.88% | 7.67% | 5.21% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 7.45, 10.64 and 11.97. The corresponding 10 year ratios are 10.01, 11.12 and 12.44. The corresponding historical ratios are 6.07, 11.00 and 13.17. The current P/E Ratio is 9.91 based on a stock price of $125.90 and EPS estimate for 2023 of $12.70. The current ratio is below the low of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 9.02, 10.22 and 11.28. The corresponding 10 year ratios are 9.22, 10.42 and 11.76. The current P/AEPS Ratio is 9.26 based on AEPS estimate for 2023 of $13.60 and a stock price of $125.90. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $171.03. The 10-year low, median, and high median Price/Graham Price Ratios are 0.71, 0.80 and 0.90. The current P/GP Ratio is 0.74 based on a stock price of $125.90. The current ratio is between the low and median ratios of the 10 year median ratios. 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 1.38. The current P/B Ratio is 1.32 based on a Book Value of $64,730M, Book Value per Share of $96.60 and a stock price of $125.90. The current ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I also have a Book Value per Share estimate of $105.00. This implies a book Value of $71,096M and with a stock price of $125.90, a P/B Ratio of 1.20. This ratio is 13% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 2.67. This is a very low ratio because of some negative Cash Flows within the past 10 years. The current P/CF Ratio is 17.20. This ratio is 544% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. However, I would question the value of this test. Also, Cash Flows on banks tend to be largely ignored by analyst.
I get an historical median dividend yield of 4.38. The current dividend yield is 4.54 based on dividends of $5.72 and a stock price of $125.90. The current dividend yield is 4% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 4.12. The current dividend yield is 4.54 based on dividends of $5.72 and a stock price of $125.90. The current dividend yield is 10% above the 10 year 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 2.56. The current P/S Ratio is 2.66 based on Revenue estimate for 2023 of $32,052M and Revenue per Share of $47.34. The current P/S Ratio is 4% 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 yield tests say it is reasonable and below the median. The P/S Ratio tests say the stock price if reasonable and above the median (but by only 4%). So, I call this as reasonable. Most of the other testing, except for the P/E Ratio testing says that the stock price is reasonable and below the median.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (9), Hold (3) and Sell (1). The consensus would be a Buy. The 12 month stock price is $142.69. This implies a total return of $17.88% with 13.34% from capital gains and 4.54% from dividends.
I think that the sell recommendation is unusual. However, on Stock Chase there was a Do Not Buy recommendation by a Paul Gardner. He writes in September 2022: "Got stung by low forecasts. Margin spreads are suffering. Not one of his favourites. Sector is cheap, but he is still not being aggressive. Inverted yield curve is not good for banks. "
Analysts on Stock Chase like this bank. Stock Chase gives it 5 stars out of 5. It is on the Money Sense List with a B rating. Ambrose O'Callaghan on Motley Fool thinks you can currently buy this bank at a huge discount. Christopher Liew on Motley Fool talks about getting a bigger US footprint with the purchase of the Bank of the West. This bank put out a Press Release on their 2022 results. Simply Wall Street reviews this bank via Yahoo Finance. Simply Wall Street puts out two warnings of earnings are forecast to decline by an average of 10.4% per year for the next 3 years; and shareholders have been diluted in the past year. Simply Wall Street gives this stock 4 stars out of 5.
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 6, 2023 around 5 pm. Tomorrow on my other blog I will write about Something to Buy January 2023 .... learn more on Thursday, January 5, 2023 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.
What bank stock would you consider to be the most reasonably priced at this time?
ReplyDeleteI have not finished reviewing all the banks yet. I will comment on this later.
DeleteSusan
Holding the stock since 1983 is 40 years, I am new to investing and holding for little more than 2 years seems difficult. I wonder if you have any 100 baggers.
ReplyDeleteMay this what warren buffet meant own a piece of business, may be owners never shun companies just because they have few bad years.
What I generally want in a stock is a return of at least 8% per year total return (capital gains and dividends) I generally chose dividend growth and lower dividend yields. I generally do not go after the big wins as that is gambling, but I do occasionally gamble on small stocks for fun.
ReplyDeleteHi, What is the minimum yield you would consider? If you are looking for 8% total return then what kind of margin you would leave like you would expect 10% and leave 2% for error?
DeleteI do not invest in Canadian stocks but blog gives me motivation to continue to hold stocks and long term means decades. Thank you
Minimum yield I would consider is 1%. There is generally a correlation between yield and growth. The higher the yield the lower the growth and vice versa. If you are getting a yield of 1%, often the increase in 15% or higher. If you are getting a yield of 6%, you are lucky to get an increase near background inflation, which over long periods in US and Canada is 3%.
ReplyDeleteMost of my stock return over 8% total return. I do get rid of stock that consistently have a lower than 8% total return.