Bank of Montreal (TSE:BMO) Will Pay A Larger Dividend Than Last Year At CA$1.59

Bank of Montreal (TSE:BMO) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of February to CA$1.59. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.

See our latest analysis for Bank of Montreal

Bank of Montreal's Earnings Will Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.

Having distributed dividends for at least 10 years, Bank of Montreal has a long history of paying out a part of its earnings to shareholders. Based on Bank of Montreal's last earnings report, the payout ratio is at a decent 64%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to expand by 44.9%. The future payout ratio could be 46% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Bank of Montreal Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from CA$3.04 total annually to CA$6.36. This means that it has been growing its distributions at 7.7% per annum over that time. 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 could be attracted to the stock based on the quality of its payment history. Although it's important to note that Bank of Montreal's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.8% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

Bank of Montreal Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Bank of Montreal is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 Bank of Montreal analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.