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Why Bank of Montreal Is Still a Good Buy Despite a Disappointing Q4

Bank of Montreal (TSX:BMO)(NYSE:BMO) released its fourth-quarter results on Tuesday — the last of the big banks to report its earnings. Net income of $1.23 billion was down 9% from the $1.35 billion in profit that the bank recorded a year ago.

Adjusted earnings per share of $1.94 were down from $2.10 per share a year ago and fell short of the $1.99 in per-share earnings that analysts were expecting for the quarter. The bank did see revenues climb to $5.66 billion, a year-over-year increase of more than 7%.

The market was undecided on the results, as the stock was down less than 1% by the close of Tuesday’s trading session. Let’s take a closer look at the results to see whether or not BMO is a good buy after its latest quarter.

Reinsurance claims hurt the bank’s profits

The bank saw reinsurance claims rise in Q4, as three big hurricanes this year — Harvey, Irma, and Maria — created lots of devastation and resulted in $112 million worth of claims this past quarter and cost the company $0.17 in per-share earnings.

Other expenses further eroded profits

The bank incurred $41 million in after-tax expenses due to restructuring. BMO also had a 20% higher provision for credit losses this quarter, which added $34 million in costs to the company’s financials.

Canadian operations the lone bright spot in Q4

BMO says a weaker U.S. dollar was to blame for the company’s disappointing results south of the border. The company’s U.S. personal and commercial banking segment recorded profits of $280 million for the quarter — a decrease of 3% from a year ago.

The bank’s wealth management segment saw a 38% year-over-year decline in net income, while the capital markets division also saw profits decrease 17% from a year ago.

BMO saw the strongest performance in its Canadian personal and commercial banking segment, which saw profits reach $624 million — a 6% increase from 2016.

Strong overall performance for the year

Despite a disappointing Q4, BMO had a strong year with profits up 16% from 2016 and earnings per share of $7.92 also rising 14% year over year. The company’s top line showed more timid growth with sales of $22.3 billion up just 6% year over year.

Dividend increased by 3%

The bank announced that its quarterly dividend will rise to $0.93, which is a $0.03 increase from last quarter’s payment. The rate hike comes in a little bit higher and earlier than I expected it to.

Is BMO a stock that should be in your portfolio?

BMO has some solid fundamentals, and it could be a great buy for value investors. It didn’t have an amazing performance in Q4, but it still put in a great year, and if interest rates continue to rise, the company could benefit from higher spreads next year.

BMO’s stock trades at a slightly more modest valuation than some of its peers, and it is well diversified with many opportunities for growth. With its terrific dividend growth, BMO is a great stock that you can own for many years to come and benefit not only from growing dividend income, but capital appreciation as well.

Year to date, the stock has risen less than 3%, and it could have a lot of upside in 2018.

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Fool contributor David Jagielski has no position in any stocks mentioned.

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