Bank of Montreal: This Canadian Bank Yields 4% And Just Raised Its Dividend

Of the many financial sector stocks based in the U.S., many big banks like JP Morgan (JPM) and Bank of America (BAC) have dividend yields of 3% or below. For income investors looking for even higher dividend yields, Canadian banks are an attractive alternative.

Royal Bank of Canada (RBC) has a nearly 4% dividend yield. The stock also has long-term growth potential, making RBC one of the best Canadian bank stocks today.

Business Overview

Bank of Montreal (BMO) was formed in 1817, becoming Canada’s first bank. In the more than 200 years since it has become one of Canada’s largest financial institutions. Today, BMO operates more than 1,500 branches, and the stock has a market capitalization of $47 billion.

On May 29^th, the company announced 2019 second-quarter financial results. Net revenue increased 8% for the quarter, and beat analyst expectations. Adjusted EPS increased 5% for the quarter. Over the first two fiscal quarters, BMO registered 7% revenue and adjusted EPS growth.

The U.S. segment led the way, with 16% adjusted net income growth, while the Canadian banking segment grew adjusted net income by 5% last quarter. Wealth management net income rose by 3% year-over-year, meaning BMO enjoyed broad-based growth.

BMO’s U.S. segment accounts for roughly ~35% of the company’s earnings, while BMO offers investors international diversification as well. Continued growth in the U.S. and global economy will result in higher loans and deposits. This should provide BMO with a long runway of growth up ahead. In the meantime, the company rewards shareholders with a hefty 4% dividend.

Attractive Dividend Stock

BMO is not only an attractive stock for its steady business model and growth, but it is also an attractive dividend stock. Along with announcing its second-quarter earnings, BMO raised its dividend by 3%. In U.S. dollars, the forward quarterly dividend rate rises to $0.76 per share. On an annual basis, the dividend payout of $3.04 per share represents a 4.1% dividend yield.

BMO should continue to pay its dividend each quarter for the foreseeable future. The company generated stable EPS performance over the past decade. It has produced higher earnings-per-share every year since 2009. BMO is expected to grow its EPS by approximately 4% per year over the next five years.

BMO is also attractive valued, as the stock trades for a P/E ratio of just around 10x. The valuation multiple has room for expansion from the present level, meaning shareholders could benefit from a rising share price due to multiple expansion.

BMO regularly raises its dividend as its EPS steadily grows. The upcoming dividend payment will be 7% higher than the same quarterly payout last year. The combination of consistent growth, an industry-leading position, and a high yield above 4% make BMO one of the best Canadian bank stocks to buy today.