When dividend investors start prospecting income stocks, their minimum essential requirement is the proven resilient earnings power of the company, not necessarily the yield. Some names pay high dividends, but the payouts are not safe or sustainable. They could even be dividend traps if you’re not careful.
If you want to simplify the selection process, look at the dividend track record. A company that has paid dividends consistently for years is a good investment prospect. However, Bank of Montreal (TSX: BMO)(NYSE: BMO) is a cut above the rest. Canada’s fourth-largest bank is the dividend pioneer.
Most extended dividend sequence on record
Companies share a portion of their profits with loyal shareholders through dividends. Most dividend investors have long-term financial goals and will not take risks in exchange for high returns. You can minimize the risks and maximize returns with this investment strategy.
BMO is for the patient investor who’s building wealth or creating a nest egg for retirement. The $82 billion bank’s first dividend payment was in 1829. Believe it or not, but the blue chip hasn’t missed a dividend payment since. This year is the 192nd year BMO will pay quarterly dividends.
If you translate the payments into quarters, it would be a total of 768 for the entire stretch. BMO’s dividend track record is short of 32 quarters to make it 200 years, or two centuries. The bank will hit the milestone by 2029.
Top performer
Thus far in 2021, BMO (+33.57%) outperforms CIBC (+33.12%), National Bank of Canada (+32.24%), Toronto-Dominion Bank (+23.82%), Royal Bank of Canada (+22.77%), and Bank of Nova Scotia (+19.90%). As of July 5, 2021, BMO trades at $127.32 per share with a decent 3.34% dividend. It’s not the highest in the banking sector but should be super safe and sustainable given the 46.5% payout ratio.
Market analysts are bullish and see a potential upside of between $135.53 (+6.4%) and $150 (+17.8%) in the next 12 months. The growth estimate for BMO in the next five years is 19.55% per annum.
Formidable as ever
BMO is formidable as ever, following the glowing financial results after two quarters. In the first half of fiscal 2021 (six months ended April 30, 2021). The top line and bottom line increased by 8.7% and 45.6% versus the same period in fiscal 2020. Notably, provision for credit losses (PCLs) dropped from $1.46 billion to $216 million.
Leeway for a generous dividend increase
We don’t know when the Office of the Superintendent of Financial Institutions (OFSI) will allow the big banks, including BMO, to hike dividend payments. The OSFI has yet to unwind its March 2020 order for banks not to raise dividends or buy back shares.
BMO, for example, has $6.2 billion excess CET1 capital. Assuming OSFI lifts the no-hike order, a larger-than-usual dividend increase is possible. Credit Suisse analyst Mike Rizvanovic believes that National Bank of Canada and BMO have more leeway to be extra generous and deliver the biggest dividend increases.
For Scott Chan, an analyst at Canaccord Genuity, OFSI will probably lift the restriction by September 2021. Robert Wessel, the managing partner at Hamilton ETFs, said the regulator could have already lifted the order. The capital levels of the Big Six banks are way above OSFI’s requirements. OSFI Superintendent Jeremy Rudin said he will lift the restriction on distribution soon.
