Bank of Montreal (TSX:BMO)(NYSE:BMO) often gets bumped to the sidelines when investors are looking for a bank pick to add to their portfolios.
That might not be the smartest move going forward.
Diversified earnings
Bank of Montreal is holding up well in a tough economic environment. The company reported fiscal Q3 profits of $1.23 billion, up 6% from the same period last year.
The strong results can be attributed to the company’s balanced revenue stream.
The Canadian personal and commercial banking segment remains the core strength of the company, earning Q3 net income of $557 million, a 6% increase over Q3 2014. Deposits rose by 6% and the group delivered loan growth of 3%.
South of the border, Bank of Montreal has more than 600 branches with more than 14,000 employees serving customers primarily located in the Midwest.
The rising U.S. dollar coupled with an improved economy is proving to be very beneficial for Bank of Montreal’s results. The U.S. operations contributed $186 million in Q3 net income, up 36% compared with the same period last year. The commercial operations are particularly strong with loan growth hitting double digits.
Investors should see the commercial segment get even stronger as BMO absorbs its recent purchase of GE Capital’s commercial-truck-financing business.
Wealth management is another area of strength. The division increased assets under management by 13% in Q3 and net income hit $233 million, up 8% from Q3 2014.
The final piece of the puzzle is the capital markets group, which saw year-over-year earnings drop by 11% to $274 during Q3. This area of the business tends to be more volatile and results can vary widely from one quarter to the next.
Reasonable risks
Bank of Montreal finished Q3 with $95 billion in Canadian residential mortgages. About 60% of the portfolio is insured and the loan-to-value ratio on the rest is 58%. That means the housing market would have to really fall out of bed for Bank of Montreal to see any material losses.
Dividend stability
Bank of Montreal pays investors a quarterly dividend of $0.82 per share that yields about 4.3%. The bank has given shareholders a piece of the profits every year since 1829, so investors should feel comfortable with the safety of the distribution.
Should you buy?
The stock trades at a reasonable 10.1 times forward earnings and offers a nice revenue mix by segment and geography. If you are looking for a solid dividend pick, Bank of Montreal is a reliable choice.
