Bank of Montreal's (TSE:BMO) dividend will be increasing to CA$1.33 on 28th of February. This takes the annual payment to 3.3% of the current stock price, which is about average for the industry.
Bank of Montreal's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. Bank of Montreal is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 8.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.
Bank of Montreal Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from CA$2.80 to CA$5.32. This means that it has been growing its distributions at 6.6% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Bank of Montreal has seen EPS rising for the last five years, at 11% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Bank of Montreal's prospects of growing its dividend payments in the future.
Overall, we always like to see the dividend being raised, but we don't think Bank of Montreal will make a great income stock. While Bank of Montreal is earning enough to cover the payments, the cash flows are lacking. We don't think Bank of Montreal is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 10 analysts we track are forecasting for Bank of Montreal for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.