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Bank of Montreal: The Ultimate Bank Stock

Although the “Big Five” are small compared to the banks south of the border, in Canada they are considered some of the top investments. And when it comes to earning dividends from bank stocks, there is no company better than Bank of Montreal  (TSX:BMO)(NYSE:BMO).

Bank of Montreal just celebrated its 200-year anniversary, launching way back in 1817. In 1829, it became the first Canadian company to pay a dividend. But what should excite investors the most is that it has never missed a dividend payment; Bank of Montreal had to reduce the dividend in 1942, but through the Great Depression, multiple world wars, energy crises, and the financial disaster, it has never stopped paying a dividend.

That takes commitment to the investor and is a big reason the bank is the ultimate dividend stock. The bank has also had consistent dividend growth. Over the past 15 years, the dividend has had a compound annual growth rate (CAGR) of 7%.

But just because the bank has paid a dividend in the past, does that mean it will be able to continue paying one going forward? If Bank of Montreal’s first-quarter numbers show anything, it’s that the bank will be able to keep paying its dividend.

On an adjusted basis, Bank of Montreal reported $1.53 billion — up 30% from the first quarter in 2016. Its adjusted return on equity was 15.3% compared to 12.1% year over year. The bank is making more money and generating a far greater return on its equity than it had in the previous year.

Its P&C divisions in both Canada and the United States did really well. In Canada, it earned $743 million — up 40% from a year earlier. In the United States, it earned $196 million — up 8%. Wealth management had an incredible quarter with net income of $266 million — up 81% from the year prior. BMO Capital Markets generated $376 million in net income — up 46%. And its corporate services division reported an adjusted net loss of $143 million compared to a $48 million loss last year.

A big reason Bank of Montreal has been able to increase its earnings so much is due to a slew of smart acquisitions.

There was the acquisition of Greene Holcomb Fisher, an advisory firm that has worked on over 100 deals in the past five years. These sorts of companies get a management fee, so if there is an increase in M&A activity in 2017, we can expect to see the capital markets division get even stronger.

Another acquisition was the takeover of General Electric’s transportation finance business. This is a commercial trucking lease business; essentially, trucking companies lease new rigs; 20% of all truck leases happen through this business, so it could be a very lucrative acquisition for Bank of Montreal.

Bank of Montreal pays a 3.5% yield and has consistently increased the dividend. In the past year, it has grown by 5%. Should net income continue rising like it did this quarter, I expect the bank to announce another hike in the second or third quarter. And with history on its side, I see little reason for the dividend to ever stop, making this an ultimate dividend stock.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned. The Motley Fool owns shares of General Electric.

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