Bank of Montreal (TSE:BMO) Has Re-Affirmed Its Dividend Of CA$1.06

By
Simply Wall St
Published
October 17, 2021
TSX:BMO
Source: Shutterstock

The board of Bank of Montreal (TSE:BMO) has announced that it will pay a dividend on the 26th of November, with investors receiving CA$1.06 per share. This means the dividend yield will be fairly typical at 3.2%.

See our latest analysis for Bank of Montreal

Bank of Montreal's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Bank of Montreal's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 14.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
TSX:BMO Historic Dividend October 18th 2021

Bank of Montreal Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was CA$2.80, compared to the most recent full-year payment of CA$4.24. This means that it has been growing its distributions at 4.2% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Bank of Montreal Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Bank of Montreal has seen EPS rising for the last five years, at 9.7% per annum. Bank of Montreal definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Bank of Montreal's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bank of Montreal's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for Bank of Montreal for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.