BMO – High Dividend Yield And Safety From Canada’s Oldest Bank

Investors with a low tolerance for risk who seek a reliable stream of dividend income may wish to consider BMO (BMO) for income and safety.

It was my first full-time employer following my graduation from university in 1980. Although I like the bank for sentimental reasons, this has no bearing on my decision to invest in it. I was employed with BMO in Calgary, Alberta between 1980 – 1984. During this timeframe, I was old enough to understand the ramifications of a recession; the Canadian oilpatch was hit extremely hard! Just prior to returning to university to pursue my MBA, BMO acquired Chicago-based Harris Bank in the summer of 1984.

Upon completion of my MBA, I resumed my banking career where I had the good fortune of being employed until early retirement in 2016. During my career I witnessed the:

  • October 1987 market plunge;
  • implosion of the real estate market in the early 1990s;
  • bursting of the dot-com bubble in 2000; and
  • 2007 – 2008 Global Financial Crisis.

BMO-Dividend-and-Safety-from-Canadas-Oldest-Bank

Personally witnessing the devastation these events had on many companies and individuals with whom I had dealings helped me become a prudent investor.

I rank The Global Financial Crisis as being one of my most influential events from an investing perspective. In fact, were it not for The Global Financial Crisis, it is very possible BMO may have never acquired Marsh & Isley in 2011.

Coincidentally, I was a member of my employer’s Financial Institutions corporate cash management team during The Global Financial Crisis. I distinctly remember how some supposedly sound US banks were ‘here one day and gone the next’. The Global Financial Crisis taught me that there can be a disconnect between appearance and reality. Companies that appear to be financially sound might truly be accidents waiting to happen. What I am now witnessing with many SPACs and MEME investments is reminiscent of some of the ‘junk’ that imploded during The Financial Crisis.

Fast forward to the present and we see the Harris Bank and Marsh & Isley acquisitions in the US were shrewd acquisitions; BMO’s US operation generates ~40% of the bank’s total adjusted net income.

BMO – Q2 2021 Earnings Presentation

I don’t know if we will witness another Financial Crisis during our lifetime. I, however, mention the above in the hope investors realize the current market conditions are not ‘normal’. The ‘good times’ will not last indefinitely and the present is a good time to dial back risk.

NOTE: The Bank of Montreal (BMO) reports in Canadian dollars and is listed on the TSX and the NYSE. All financial information in this post is expressed in Canadian dollars.

BMO – Dividend and Safety – Business Overview

BMO is North America’s 8th largest bank by assets, with total assets of $949 billion as of October 31, 2020 (FYE2020).

Through the following 3 operating groups, it provides a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services:

  • Personal and Commercial Banking;
  • BMO Wealth Management; and
  • BMO Capital Markets.

It serves ~8 million customers across Canada through its Canadian personal and commercial banking arm, BMO Bank of Montreal and more than 2 million personal, business and commercial banking customers through BMO Harris Bank, based in the U.S. Midwest.

BMO also serves customers through its wealth management businesses – BMO Private Wealth, BMO InvestorLine, BMO Wealth Management U.S., BMO Global Asset Management and BMO Insurance.

BMO Capital Markets provides a full suite of financial products and services to North American and international corporate, institutional and government clients, through its Investment and Corporate Banking and Global Markets divisions.

In the bank’s ongoing efforts to optimize efficiency and to focus capital and investment in areas where it has an advantaged market position, BMO announced on April 12, 2021 that it had reached a definitive agreement with Ameriprise Financial, Inc. to sell the entities that represent BMO’s EMEA Asset Management business; a Q4 2021 closing is subject to regulatory approvals and other customary closing conditions.

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Disclosure: I am long BMO, RY, TD, BNS, and CM.

Disclaimer: Dividend Power is not a licensed or registered investment adviser or broker/dealer. We are not providing you with ...

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