Bank of Montreal (TSX:BMO)(NYSE:BMO) is rarely touted as a top Canadian bank pick, but that might begin to change.

Here’s why.

Earnings stability

Bank of Montreal recently reported solid results for the company’s third quarter that ended on July 31.

The company delivered an 8% year-over-year increase in adjusted earnings per share, driven by strong performances in personal and commercial banking in Canada and the U.S., as well as in the company’s wealth management unit.

In Canada, the personal and commercial banking operations brought in net income of $566 million, a 6% increase over the same period last year. Deposits rose by 5%, personal loans increased 2%, and commercial banking enjoyed year-over-year deposit and loan growth of 8% and 7%, respectively.

Those are pretty good numbers given the headwinds facing the Canadian economy.

Bank of Montreal also has a large U.S.-based division with over 600 branches located in the Midwestern states.

Net income from the American operations increased 38% in the quarter, hitting $222 million. The company continues to see strength in the commercial and industrial segment, where loan growth hit 14%.

As the American economy continues to improve, Bank of Montreal’s U.S. division should help offset weakness in Canada. The strong U.S. dollar is also helping boost results.

Bank of Montreal also has a growing wealth management business with operations located around the world. This further diversifies the company’s revenue stream, which is important as the Canadian economy works through a rough patch.

Earnings in the wealth management group came in at $210 million, an 11% gain compared with the third quarter last year.

Capital markets operations brought in a respectable $273 million in profits for the quarter. This was actually down 11% compared with last year. The capital markets segment tends to be more volatile than the other divisions and these results can vary widely from one quarter to the next.

Overall, Bank of Montreal has a very balanced revenue stream, and this diversification is getting more respect in the current environment.

Dividend reliability

Bank of Montreal has paid a dividend every year since 1829. The current quarterly payout of $0.82 per share yields 4.7%. The dividend is very safe, and investors should expect to see the steady distribution growth continue.

Attractive valuation

Bank of Montreal trades at a very reasonable 10 times forward earnings and just 1.3 times book value. These are attractive metrics when compared with the stock’s five-year averages.


Bank of Montreal only has 2% of its total loan book exposed to the oil and gas sector. As for housing risks, the bank finished the last quarter with $95.4 billion in Canadian residential mortgages on its books. About 60% of the portfolio is insured and the loan-to-value ratio on the rest is 58%.

Bank of Montreal is very well capitalized with a Basel III CET1 ratio of 10.4%.

What does all this mean?

Bank of Montreal is more than capable of riding out a slowdown in the economy, further weakness in the energy sector, and a pullback in the housing market.

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Fool contributor Andrew Walker has no position in any stocks mentioned.