The Canadian banks have performed well since the financial crisis. Dividends are increasing at a healthy clip and shareholders have watched stock prices double from 2009 lows.
In the last round of earnings statements, all of Canada’s banks warned that strong headwinds in 2015 could have an impact of earnings. The message was unanimous in the sector, and many investors have been caught off guard. Financial stocks have since been under pressure and investors are wondering if they should avoid the sector.
A balanced portfolio should hold some financial stocks, but the traditional practice of throwing a dart at the group to pick your investment might not be the best way to go right now. The banks are diverging on their growth strategies and it is possible that the group might not move in unison going forward.
Here are four reasons Bank of Montreal (TSX:BMO)(NYSE:BMO) might be a good choice right now.
1. U.S. economy
Bank of Montreal is betting big on the U.S. recovery. The company’s foray into the U.S. market began in the 1980s when it bought Harris Bankcorp. In 2011, the company decided to go all in by dropping $4.1 billion to purchase Wisconsin-based Marshall and Ilsley Corp.
BMO Harris Bank now has a substantial foothold in the U.S. midwest, and the company continues to build its brand in the region.
In the company’s Q4 2014 earnings statement, BMO reported strong double-digit commercial loan growth in the U.S. division, with a 21% year-over-year increase in the portfolio.
2. Wealth management
Bank of Montreal has also focused on building its global wealth management business. In 2014 the company acquired F&C Asset Management, a U.K.-based company with strong operations in Europe. The deal helps diversify Bank of Montreal’s revenue stream and positions it well for an eventual recovery in Europe.
3. U.S. dollar
The U.S. dollar has risen more than 12% against the Canadian dollar in the past 12 months. With the latest rate cut by the Bank of Canada, and the continued rout in the oil market, the spread is likely to continue to widen. This means Bank of Montreal’s earnings should continue to get a nice boost from its U.S. division.
4. Dividends
Bank of Montreal pays a dividend of $3.20 per share that yields about 4%. The distribution should be very safe. The company has increased the payout five times in the past three years. Dividend growth could slow down but investors should see an increase in 2015.
The Canadian economy is probably entering a difficult stretch and it is important to own a bank with diversified earnings. Bank of Montreal should be well positioned to weather the coming Canadian economic storm.
