For investors looking to acquire a stock that pays tremendously safe and lucrative dividends, there are few companies that rank as well as Bank of Montreal (TSX:BMO)(NYSE:BMO). While it is not as large as the other banks in Canada, ranking fourth among the Big Five, it has a diversified business model, which contributes to its rank as a great dividend stock.
Before we talk about the dividend, it’s important to analyze how the company is doing from a financial perspective.
Bank of Montreal recently announced its first-quarter results and they beat analysts’ expectations. While analysts had expected the company to earn $1.72 in adjusted earnings per share, the company actually earned $1.75. This was on the back of $5.16 billion. What’s incredible is that, year over year, the earnings are significantly greater than the $1.53 in adjusted EPS from 2015.
If we look at the different businesses Bank of Montreal has, its clear why it did so well. Its Canadian banking operations accounted for $530 million in profit, a 5% increase over the previous year. Primarily, a 5% increase in loans and a 6% increase in deposits led to this profit increase.
In its capital markets business, adjusted net income rose by 18% year over year. This is significant because the markets have been quite volatile, sometimes making it harder to generate significant gains.
In the United States, Bank of Montreal’s business continues to grow. Year over year, its 500+ branches delivered a 29% increase in adjusted net income, which is serious growth.
On the topic of the United States, one of the reasons why I’m so bullish on Bank of Montreal is because of its expansion in the country. With its acquisition of the Transportation Division at General Electric, Bank of Montreal has gained considerable exposure to the truck-leasing business. The bank’s commercial loans will expand by 13% and will give it access to 20% of the market share.
As for risk, there are actually very few risks when it comes to this bank. It does have $7.4 billion in loans associated with gas and oil, but this only accounts for 2% of its total loan book. While these loans could suffer if oil prices stay depressed, the impact is relatively small. And on the mortgage side, it would take a serious housing crisis for the bank to be impacted; and 59% of its $97.6 billion mortgage portfolio is insured.
All of this leads me to the dividend, which is absolutely brilliant. It pays a generous 4.3% yield, which comes out to $0.84 per quarter. What makes this even greater is that Bank of Montreal has not missed a dividend since 1829. Even during economic crisis, it finds a way to distribute profits to investors.
All told, if you’re looking for a secure dividend and a stock that is experiencing growth in all the right places, you really can’t go wrong with the Bank of Montreal. It might not be as flashy as the other banks, but it more than makes up for that in profit.
