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Bank of Montreal: Should This Stock Be Your Top Pick Today?

Bank of Montreal (TSX:BMO)(NYSE:BMO) is often overlooked by investors, but the stock probably deserves more respect.

Let’s take a look at Canada’s oldest bank to see if it should be in your portfolio.

Earnings

Bank of Montreal reported solid results for fiscal Q3 2016. Adjusted net income came in at $1.3 billion, up 5% compared with the same period last year. Earnings per share rose 4%.

The bank’s strength lies in its diversified revenue stream.

Canadian personal and commercial banking activities generated adjusted net income of $562 million, up 1% compared with Q3 2015. Loans rose by 6% and deposits grew 8%.

South of the border, the company’s U.S. personal and commercial group delivered much better results. Adjusted net income rose 22% to $289 million, driven higher by a strong U.S. dollar and new revenue generated by the company’s acquisition of GE Capital’s transport finance business.

BMO’s capital markets division saw adjusted net income jump 18% on the back of higher corporate banking revenue.

Wealth management was the only laggard. Adjusted net income slid 2% year over year as weaker insurance results and lower equity markets hit the group.

Overall, the company delivered a strong quarter in a challenging environment.

Risks

Bank investors are concerned about the ongoing impact of the oil rout and the potential for a meltdown in the Canadian housing market.

Bank of Montreal finished fiscal Q3 with oil and gas loans of $7.6 billion. That represents about 2% of the company’s overall loan book, so there isn’t much concern on that front.

The bank has an additional $8.2 billion in undrawn exposure with 50% rated as investment grade.

Regarding housing, Bank of Montreal has $101.2 billion in Canadian residential mortgages on the books. Insured loans represent 57% of the portfolio and the loan-to-value ratio on the remaining mortgages is 56%. This means house prices would have to fall significantly before the bank feels any material pain.

Dividends

Bank of Montreal pays a quarterly dividend of $0.86 per share. That’s good for a yield of 4%. Investors have received a distribution every year since 1829.

Should you buy?

Bank of Montreal isn’t as cheap as it was earlier in the year, so there might be limited upside in the near term. However, the company offers good exposure to the U.S. market, a balanced revenue stream, and a reliable dividend.

If you want a bank stock you can buy and simply forget about for a decade, Bank of Montreal should be high on your list.

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