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Investors who own shares in Bank of Montreal (BMO) just received an early Christmas gift. The bank recently announced a big 25% jump in its dividend and a plan to buy back up to 22.5 million of its shares through a normal course issuer bid.

Canada’s banks and insurance companies had been under orders not to raise dividends or buy back shares since March 2020. The Office of the Superintendent of Financial Institutions (OSFI), a federal agency, imposed the standstill at the beginning of the pandemic to encourage banks to build capital reserves and to have money available for lending.

Last month, the OSFI rescinded the ban, but urged financial institutions to exercise prudence in raising their dividends. Most of the big banks complied. Prior to the BMO announcement, the largest increase among the 'Big Five' was by Toronto-Dominion Bank (TD), which hiked its dividend by 13%.

BMO decided to take a more aggressive approach after posting fourth quarter and fiscal year-end results that topped analysts’ estimates by a wide margin. The bank announced net revenue of about $5.6 billion for the fourth quarter, up 8.1% from the same period in 2020. For the full fiscal year, net revenue was $25.8 billion, up from $23.5 billion in fiscal 2020.

Adjusted net income for the quarter was $2.2 billion ($3.33 a share, fully diluted). That compared to $1.6 billion ($2.41 a share) the year before. For the 2021 fiscal year, adjusted net income was $8.7 billion ($12.96 per share), up from $5.2 billion ($7.71 per share) last year.

BMO's Common Equity Tier 1 (CET1) Ratio was 13.7% as of Oct. 31, an increase from 13.4% at the end of the previous quarter. The improvement was driven by retained earnings growth, partially offset by higher source currency risk-weighted assets.

The bank’s new quarterly dividend will be $1.33 per share ($5.32 a year). That’s up from $1.06 per quarter ($4.24 per share). The stock yields 3.9%. The plan to repurchase 22.5 million of its shares is equivalent to 3.5% of its total common stock. With these numbers, I would say the action to take now is to buy.