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

Bank of Montreal (TSE:BMO) will increase its dividend from last year's comparable payment on the 26th of February to CA$1.59. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.

View 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.

Bank of Montreal has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 64%, which means that Bank of Montreal would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 36.0%. Analysts estimate the future payout ratio will be 50% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2014, the annual payment back then was CA$3.04, compared to the most recent full-year payment of CA$6.36. This means that it has been growing its distributions at 7.7% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Bank of Montreal's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.8% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 10 analysts we track are forecasting for Bank of Montreal for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.