Exploring the Sustainability and Growth of BMO's Dividends
Bank of Montreal (BMO, Financial) recently announced a dividend of $1.51 per share, payable on 2024-02-27, with the ex-dividend date set for 2024-01-29. As investors look forward to this upcoming payment, the spotlight also shines on the company's dividend history, yield, and growth rates. Using the data from GuruFocus, let's look into Bank of Montreal's dividend performance and assess its sustainability.
What Does Bank of Montreal Do?
Bank of Montreal is a diversified financial-services provider based in North America, operating four business segments: Canadian personal and commercial banking, U.S. P&C banking, wealth management, and capital markets. The bank's operations are primarily in Canada, with a material portion also in the U.S.
A Glimpse at Bank of Montreal's Dividend History
Bank of Montreal has maintained a consistent dividend payment record since 1989, with dividends currently distributed on a quarterly basis. Bank of Montreal has increased its dividend each year since 2009, earning it the status of a dividend achiever—a designation for companies that have consistently raised their dividends for at least 15 consecutive years.
Below is a chart showing annual Dividends Per Share for tracking historical trends.
Breaking Down Bank of Montreal's Dividend Yield and Growth
As of today, Bank of Montreal currently has a 12-month trailing dividend yield of 4.40% and a 12-month forward dividend yield of 4.59%, indicating an expectation of increased dividend payments over the next 12 months.
Over the past three years, Bank of Montreal's annual dividend growth rate was 11.00%. This rate decreased to 9.00% per year over a five-year horizon, and over the past decade, Bank of Montreal's annual dividends per share growth rate stands at 6.60%.
Based on Bank of Montreal's dividend yield and five-year growth rate, the 5-year yield on cost of Bank of Montreal stock as of today is approximately 6.77%.
The Sustainability Question: Payout Ratio and Profitability
To assess the sustainability of the dividend, one needs to evaluate the company's payout ratio. The dividend payout ratio provides insights into the portion of earnings the company distributes as dividends. A lower ratio suggests that the company retains a significant part of its earnings, thereby ensuring the availability of funds for future growth and unexpected downturns. As of 2023-10-31, Bank of Montreal's dividend payout ratio is 1.02, which may suggest that the company's dividend may not be sustainable.
Bank of Montreal's profitability rank, offers an understanding of the company's earnings prowess relative to its peers. GuruFocus ranks Bank of Montreal's profitability 6 out of 10 as of 2023-10-31, suggesting fair profitability. The company has reported positive net income for each year over the past decade, further solidifying its high profitability.
Growth Metrics: The Future Outlook
To ensure the sustainability of dividends, a company must have robust growth metrics. Bank of Montreal's growth rank of 6 out of 10 suggests that the company has a fair growth outlook.
Revenue is the lifeblood of any company, and Bank of Montreal's revenue per share, combined with the 3-year revenue growth rate, indicates a strong revenue model. Bank of Montreal's revenue has increased by approximately 6.10% per year on average, a rate that underperforms approximately 51.07% of global competitors.
The company's 3-year EPS growth rate showcases its capability to grow its earnings, a critical component for sustaining dividends in the long run. During the past three years, Bank of Montreal's earnings increased by approximately 15.00% per year on average, a rate that underperforms approximately 32.34% of global competitors.
Lastly, the company's 5-year EBITDA growth rate of 8.50%, which underperforms approximately 47.75% of global competitors.
Next Steps
Considering Bank of Montreal's solid dividend history, current yield, and growth rate, investors may find the stock to be a compelling choice for income. However, the elevated payout ratio warrants caution, as it may challenge the sustainability of future dividends. Coupled with the company's fair profitability and growth metrics, it's essential for investors to weigh these factors against their investment strategy and risk tolerance. For those looking to expand their portfolio with high-dividend yield stocks, GuruFocus Premium offers tools like the High Dividend Yield Screener to aid in the search for potentially lucrative investments.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
Also check out: (Free Trial)
