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) will increase its dividend from last year's comparable payment on the 26th of May to CA$1.43. This takes the annual payment to 4.4% of the current stock price, which is about average for the industry.

View our latest analysis for Bank of Montreal

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

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 35%, 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 fall by 23.5%. Fortunately, analysts forecast the future payout ratio to be 46% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
TSX:BMO Historic Dividend March 3rd 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. Since 2013, the annual payment back then was CA$2.80, compared to the most recent full-year 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. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Bank of Montreal has been growing its earnings per share at 16% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Bank of Montreal's Dividend

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. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Bank of Montreal (1 is a bit unpleasant!) that you should be aware of before investing. Is Bank of Montreal not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

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.