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Bank of Montreal: Is it Time for Dividend Investors to Buy?

Bank of Montreal (TSX:BMO)(NYSE:BMO) is often passed over in favour of its larger peers, but that strategy might be flawed. Let’s take a look at BMO to see if the company deserves more respect from investors.

Earnings

Bank of Montreal just reported solid earnings for the quarter ended July 31, 2015. Adjusted earnings per share hit $1.86 for the quarter, an 8% increase over the same period last year.

The company’s Canadian personal and commercial business unit delivered net income of $566 million, a 6% year-over-year increase. The personal banking group increased loans by 2% and deposits rose 5%. The commercial banking operations had year-over-year loan and deposit growth of 7% and 8%, respectively.

Bank of Montreal also has a sizeable U.S.-based personal and commercial banking division. Net income in this group jumped 38% to $222 million. The solid results were supported by a 14% increase in commercial and industrial loans, and the effects of a stronger U.S. dollar against its Canadian counterpart.

Wealth management earnings jumped 11% in the quarter to $210 million on the back of a 13% gain in assets under management.

The bank’s capital markets group tends to be the most volatile. This segment accounted for net income of $273 million, an 11% drop from the strong results posted in the same period last year.

Investors should see the diversity of BMO’s earnings as a strong point, especially given the headwinds facing the banks in the Canadian economy.

Risks

The banks have been under pressure for several months as investors worry that troubles in the oil patch are going to spill over into the broader economy and set off a crash in the housing market. Bank of Montreal only has 2% of its total loan book exposed to the oil and gas industry.

The company finished the last quarter with $95.4 billion in Canadian residential mortgages, of which, 59.5% is insured. The loan-to-value ratio on the rest of the portfolio is 58%. The company is very well capitalized with a Basel III CET1 ratio of 10.4%. This means BMO is more than capable of riding out a slowdown in the economy as well as a pullback in the housing market.

Dividends

Bank of Montreal has paid a dividend every year since 1829. That’s a great track record and investors should see the trend continue. The bank pays a quarterly distribution of $0.82 per share that yields a solid 4.8%.

Should you buy Bank of Montreal?

The stock trades at an attractive 9.7 times forward earnings and the dividend is extremely safe. Given the size of the pullback, dividend investors should be comfortable taking a position in the stock at the current level.

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

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