Bank of Montreal (TSX:BMO)(NYSE:BMO) sits in the shadows of its larger peers, but the stock could soon find itself in the spotlight as investors search for long-term value plays.

Here are the reasons why I think Canada’s oldest bank should be on your radar right now.

1. Stable earnings

Bank of Montreal delivered solid results in its third quarter, which ended July 31.

Adjusted earnings per share improved 8% compared with the same period last year, supported by the bank’s strong personal and commercial banking operations on both sides of the border. The wealth management unit also performed well.

In Canada, the personal and commercial banking group increased earnings by 6% to $566 million as deposits jumped 5% and personal loans rose 2%. Commercial banking remains one of the company’s strongest segments as it delivered year-over-year deposit and loan growth of 8% and 7%, respectively.

These numbers might not sound big, but they are impressive given the current weakness in the Canadian economy.

Bank of Montreal also has a significant U.S.-based business located primarily in the Midwestern states.

Q3 net income in the American division hit $222 million, a 38% increase compared with Q3 2014. Again, the commercial and industrial segment delivered strong results with a 14% increase in loans. That strength is probably why the bank just signed a deal to acquire GE Capital’s transportation finance business in the United States. Investors should see the move as a positive one because it provides more U.S. exposure in the commercial banking segment.

The U.S. economy continues to improve and the rising American dollar is providing a nice boost to earnings.

Bank of Montreal is also getting good results from its wealth management group, which has grown significantly in recent years. Earnings in the third quarter hit $210 million, a nice year-over-year pop of 11%.

The bank’s capital markets group rounded out the quarter with profits of $273 million, down 11% compared with the same period in 2014. The wholesale banking segment tends to be more volatile than the others and profits can vary widely in any given quarter.

Bank of Montreal’s balanced revenue stream makes it an attractive pick right now as the Canadian economy works its way through a rough patch.

2. Reliable dividends

Bank of Montreal has paid a dividend every year since 1829. The quarterly payout is $0.82 per share and yields 4.7%. Investors can rely on the distribution and should see steady growth in the years to come.

3. Cheap stock price

The stock currently trades at an attractive 9.8 times forward earnings and just 1.3 times book value. Investors don’t often get a chance to buy the company at such a low valuation.

4. Manageable risks

Only 2% of Bank of Montreal’s total loan book is exposed to the energy sector. If oil and gas prices continue to fall, the bank will start to see loss provisions creep up, but investors shouldn’t be too concerned at this point.

The housing market is another area of focus for bank investors. Bank of Montreal has $95.4 billion in Canadian residential mortgages, of which 40% is uninsured. The loan-to-value ratio on that part of the portfolio is a reasonable 58%.

The bank is very well capitalized with a CET1 ratio of 10.4%.

This means Bank of Montreal is more than capable of riding out a slowdown in the economy as well as a pullback in the housing market.

The top stock to consider today!

Our analysts have identified this company as one TOP stock for 2015 and beyond. Today, you can download the name, ticker symbol, and price guidance absolutely FREE.

Simply click here to receive your Special FREE Report, "1 Top Stock for the Rest of 2015."


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

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