Stock Analysis

Bank of Montreal's (TSE:BMO) Dividend Will Be Increased To CA$1.51

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Bank of Montreal (TSE:BMO) will increase its dividend from last year's comparable payment on the 27th of February to CA$1.51. Based on this payment, the dividend yield for the company will be 4.7%, which is fairly typical for the industry.

See our latest analysis for Bank of Montreal

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

We aren't too impressed by dividend yields unless they can be sustained over time.

Bank of Montreal has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Bank of Montreal's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Bank of Montrealis pulling cash from elsewhere to keep its shareholders happy.

Looking forward, EPS is forecast to rise by 132.1% over the next 3 years. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 46% over the same time period, which would make us comfortable with the sustainability of the dividend.

TSX:BMO Historic Dividend January 21st 2024

Bank of Montreal Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was CA$2.96, compared to the most recent full-year payment of CA$6.04. This means that it has been growing its distributions at 7.4% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Is Doubtful

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. Bank of Montreal has seen earnings per share falling at 7.5% per year over the last five years. 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.

Our Thoughts On Bank of Montreal's Dividend

Overall, we always like to see the dividend being raised, but we don't think Bank of Montreal will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Bank of Montreal that investors need to be conscious of moving forward. Is Bank of Montreal not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.