Stock Analysis

Bank of Montreal (TSE:BMO) Is Increasing Its Dividend To CA$1.55

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Bank of Montreal's (TSE:BMO) dividend will be increasing from last year's payment of the same period to CA$1.55 on 27th of August. Based on this payment, the dividend yield for the company will be 5.1%, which is fairly typical for the industry.

View our latest analysis for Bank of Montreal

Bank of Montreal's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Bank of Montreal has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Bank of Montreal's payout ratio of 72% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 56.7%. Analysts forecast the future payout ratio could be 53% over the same time horizon, which is a number we think the company can maintain.

TSX:BMO Historic Dividend June 1st 2024

Bank of Montreal Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CA$2.96 in 2014, and the most recent fiscal year payment was CA$6.20. This implies that the company grew its distributions at a yearly rate of about 7.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Bank of Montreal May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. In the last five years, Bank of Montreal's earnings per share has shrunk at approximately 2.7% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. Taking the debate a bit further, we've identified 1 warning sign for Bank of Montreal that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.