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Top Pick for March 2021: Bank of Montreal

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There’s no doubt that many investors want to maximize their portfolio income by investing in the best stocks. This goes for fixed-income securities such as bonds and other asset classes as well.

With a key objective for many investors being to generate stable and growing income in retirement, now’s a great time to consider some high-yielding stocks. Indeed, I believe that March 2021 is a great time to invest in Bank of Montreal (TSX:BMO)(NYSE:BMO).

Here’s why.

Excellent performance across all divisions

BMO’s net earnings for its most recent three-month period ending Jan. 31, 2021, represented a year-over-year (YOY) increase of 27%, encompassing $2.02 billion. Analysts were expecting an EPS of $2.15 in quarterly profit. However, the bank managed to easily surprise, posting EPS of $3.06 per share on an adjusted basis. BMO’s U.S. operations experienced substantial growth, with a 67% YOY increase to approximately $459 million.

This sort of revenue growth is bullish for long-term investors. However, questions remain as to how sustainable this growth is long term. This is because much of the increase BMO reported was a result of a drop in loan-loss provisions. Various operational improvements also factored into the equation. However, any sort of bottom-line increase in the $730 million range due to one-time events is bullish over the near term and has certainly been factored into BMO’s stock price right now.

Aside from BMO’s core banking division, capital markets also delivered strong performance, with adjusted earnings of $489 million. This represented a staggering YOY increase of 36%.

Additionally, BMO announced that its tier-one capital ratio increased by 0.5% when compared to the previous quarter.

Strong valuation and a decent dividend yield

Despite the economic turmoil during the pandemic, this top TSX stock has shown a strong recovery with its earnings across all divisions. The company delivered an adjusted net income of over $2 billion. Moreover, its stellar performance has been instrumental in the 9.8% increase we’ve seen in BMO’s share price over the latest quarter.

In the past year, this top stock has gained more than 50%, far exceeding the growth the TSX has seen over this same time frame. Importantly, over the long term, BMO, along with most of its Big Six peers, have outperformed TSX.

I am convinced that BMO will continue to grow and generate decent returns over time. In the near term, much of this benefit will arise from continued loan loss reductions. However, over the longer term, I think continued operational improvements and improved credit quality will be instrumental in boosting earnings.

Bottom line

As bond yields increase, the strong financials of BMO and the other leading Canadian bank stocks are likely to continue to improve. Improved net interest margins and reduced loan-loss provisions make for a nice two-punch combo for investors.

Indeed, now is a great time to add some Bank of Montreal exposure today on these catalysts.

Like this top pick? Here are a few more to consider right now:

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

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