Stock Analysis

Bank of Montreal's (TSE:BMO) Upcoming Dividend Will Be Larger Than Last Year's

TSX:BMO
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Bank of Montreal (TSE:BMO) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of February to CA$1.43. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.

View our latest analysis for Bank of Montreal

Bank of Montreal's Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

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. Past distributions do not necessarily guarantee future ones, but Bank of Montreal's payout ratio of 27% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to fall by 40.7% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 44% over the same time period, which we think the company can easily maintain.

historic-dividend
TSX:BMO Historic Dividend January 10th 2023

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 dividend has gone from an annual total of CA$2.80 in 2013 to the most recent total annual payment of CA$5.72. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Bank of Montreal has seen EPS rising for the last five years, at 19% 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.

We Really Like Bank of Montreal's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Bank of Montreal has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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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Find out whether Bank of Montreal is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.