In my quest to find the right bank stocks to own, Bank of Montreal (TSX:BMO)(NYSE:BMO) lingered in the back of my mind. Because it is much smaller than some of the other Canadian banks, Bank of Montreal is often overlooked as an investment. However, I believe there might be merit in acquiring shares of the company.
Here are a few reasons why.
1. Incredible value
Right now, the company is trading at approximately 11 times its earnings, which is a conservative place for the stock. However, based on expected earnings next year, the stock currently trades at only 9.8 times its earnings. In other words, by purchasing shares today, they’ll be significantly discounted in the future.
Should the company continue to generate significant increases in its earnings, I see no reason that the stock won’t increase significantly in price, especially if investors are comfortable with the 11 times earnings.
2. Earnings are strong
On the topic of earnings, they are incredibly strong. Its Canadian personal and commercial banking saw earnings increase by 6%. In the United States, its net income rose by 38% to $222 million year over year.
A lot of that growth came from its commercial banking sector, which it is looking to increase further with its recent acquisition of GE Capital’s transportation finance unit. This will add billions of dollars in assets to the company, which will enable it to increase its earnings significantly.
3. Dividends
It is common for big companies to pay dividends. But when the going gets tough, those big companies have to cut back and either pay smaller amounts of stop paying all together.
Bank of Montreal has not missed a dividend payment since 1829. Consider that for a moment: World War I, the Great Depression, World War II, and the 2008 Financial Crisis were all events that could have resulted in the company no longer paying dividends. Yet, that hasn’t been the case. When you buy shares of Bank of Montreal, you know you will be paid on time, every time.
And the dividend is quite lucrative. Based on today’s price, the company yields 4.69%, which is $0.82 per share paid out quarterly. Based on its payout ratio of 49%, I see no reason that the company can’t continue paying this and will quite likely increase it over the coming years.
Time to buy?
Based on its incredible value, its strong and growing earnings, and dividends that my great-great-great grandfather would have loved, I see no reason why investors would want to pass on Bank of Montreal. It may not be as flashy as the other, bigger banks, but it certainly does its job in delivering results to investors. This is a “buy, hold, and enjoy the rewards” type of investment. It may be a little boring, but making money should be boring.
