Canadian Banks: Buy This Dividend Aristocrat on the Way up!

Bank of Montreal (TSX:BMO)(NYSE:BMO) went from worst to one of the first Canadian bank stocks to buy, and it’s still a buy on the way up.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

All it took was a year and a half for the Canadian bank stocks, many of which are top Dividend Aristocrats, to go from the doghouse to the top of the podium. With inflation jitters and worries about quicker-than-expected rate hikes, Canada’s top financial plays have suddenly become must-buys, with the ever-improving macro backdrop.

Indeed, the banks have navigated through years of horrific headwinds. But the tides are turning, and if you haven’t punched your ticket to a top bank, you may wish to do so before they hike their dividends at an above-average rate through what appears to be a much calmer road ahead.

Even if you’re a young, venturesome investor who doesn’t need passive income today, the banks are an excellent hedge against a rising-rate environment.

As always, there’s a best bank for your buck at any given time. And while you could do extraordinarily well by buying the Big Six basket or hand-selecting a random sample, I think some names offer more for your invested buck. In this piece, we’ll have a look at one of my two favourite bank stocks to ready yourself for a hot economy.

Canadian banks: From worst to first

Bank of Montreal (TSX:BMO)(NYSE:BMO) is one top Canadian dividend stock on my radar that’s nearing an attractive price. Shares of the name took a brunt of the damage last year but have since come blasting off to new highs. The bank, which has a considerable amount of commercial loans, many of which are exposed to the oil and gas sector, looked downright toxic in the ominous depths of March 2020.

Sure, BMO wasn’t the best-equipped to deal with COVID-19 lockdowns versus the likes of its Big Six peers, especially Royal Bank of Canada, whose capital markets business really smoothed out the rough waters. BMO’s loan book was never really as rancid as most investors viewed it, though. Provisions were creeping higher, but the bank wasn’t in the dire shape it was during the Great Financial Crisis. BMO and the broader basket of Canadian banks were stress-tested, with solid capital ratios.

Fast forward to today, and BMO stock is one of the best-performing TSX leaders. All of a sudden, oil is white hot, and oil and gas is actually one of the better places to be with WTI flirting with US$75. Undoubtedly, last year’s overreaction was an opportunity for a few brave investors. While BMO stock looks to have fully corrected to the upside, I’d argue that there’s still room to run, especially as Canada opens up.

The bottom line

Loan growth could blast off as provisions dwindle. Add the prospect of higher rates into the equation, and it becomes more apparent that the big banks are in the early innings of a massive bull run, which will surely be full of generous dividend hikes. Given the macro backdrop, BMO stock is one of my favourite picks, and as its recent rally runs out of steam, I’d get ready to do some buying.

The 3.3% yield is compressed, but I think it’s well- positioned to grow, as big bank dividend hikes make a return.

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 Joey Frenette owns shares of BANK OF MONTREAL. The Motley Fool has no position in any of the stocks mentioned.

More on Bank Stocks

Bank sign on traditional europe building facade
Bank Stocks

Beginners: The Top Bank Stock to Buy Before it Rockets Higher

TD Bank (TSX:TD)(NYSE:TD) is making big moves in the M&A department following the recent slide in the financial scene.

Read more »

A plant grows from coins.
Dividend Stocks

4 Stocks That Could Turn $100,000 Into $500,000 by the Time You Retire

Building retirement wealth is a long process, but it’s possible for $100,000 to grow to half-a-million dollars over time.

Read more »

edit Colleagues chat over ketchup chips
Bank Stocks

My Favourite Bank Stock is a Top Buy in This Bear Market

Bank of Montreal (TSX:BMO)(NYSE:BMO) is a great Canadian bank stock that's becoming far cheaper than the pack.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Bank Stocks

Own a TFSA for Better or for Worse

The TFSA is a financial partner for life, and users aren’t missing out, even if they’re unable to contribute or…

Read more »

You Should Know This
Bank Stocks

How to Prepare for Another Supersized Rate Hike

Another 100-basis-point rate hike could be coming, but don't worry! Use value stocks to fight off inflation and interest rates.

Read more »

Glass piggy bank
Bank Stocks

Passive Income: 3 Dividend Stocks That Put the Strong U.S. Dollar to Work!

TSX stocks like the Canadian National Railway offer considerable exposure to the strong U.S. dollar.

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Bank Stocks

1 Cheap TSX Dividend Stock to Buy for Passive Income and Total Returns

Retirement investors can buy great dividend stocks at cheap prices right now for TFSA portfolios focused on passive income and…

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Energy Stocks

Got $2,000? Here Are 3 Smart TSX Stocks to Buy Now

If you're a new investor with just $2,000 you're willing to invest, then these should be the top three TSX…

Read more »