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Is Bank of Montreal Overvalued?

Bank of Montreal (TSX:BMO)(NYSE:BMO) has been a terrific stock to own for long-term income investors. The company is a dividend-growth king that has paid a dividend to investors since 1829. With a company like this, a dividend is pretty much guaranteed, even if the markets were to crash tomorrow.

The company is also shareholder oriented and has delivered a very consistent stream of dividend increases over the past decade. Warren Buffett loves the stocks with simple businesses whose future earnings are predictable. Bank of Montreal has been arguably one of the most predictable businesses over the last century, so it’s pretty safe to assume that the dividend raises will continue to come in on a consistent basis. That’s music to the ears of investors!

The company has a solid presence in the U.S., whose economy is expected to be strengthened thanks to policies to be put forth by the Trump Administration, so there’s reason to believe that the magnitude of dividend increases will go up over the next five years. The company has over 600 branches in the U.S., and this number is expected to increase as the management team looks to increase its U.S. exposure through growth initiatives in the years ahead.

The company sounds promising, but is the stock still an attractive buy after its recent run-up? It’s one of the more expensive bank stocks out there, but there’s no real reason as to why the company trades at a premium over its peers in the Big Five. Sure, it’s got an impressive portfolio of U.S. assets, but I believe Toronto-Dominion Bank has an even stronger U.S. presence, and it’s trading at a much more attractive valuation.

Bank of Montreal has a 13.2 price-to-earnings multiple, a 1.7 price-to-book multiple, and a three price-to-sales multiple, all of which are higher than the company’s five-year historical average multiples of 11.4, 1.5, and 2.7, respectively. The dividend yield of 3.52% is also substantially lower than the company’s five-year historical average of 4%.

Sure, the Canadian bank stocks have soared over the past year, and one could argue that they’re all expensive. But I think Bank of Montreal is the most overvalued of the Big Five. I believe there’s still value left to be had in some of the other Big Five banks, so you’re better off looking at one of those. If you hold shares of Bank of Montreal, then you can hold on to them, but I wouldn’t be adding to my position right now while shares are expensive.

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Fool contributor Joey Frenette owns shares of Toronto-Dominion Bank.

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