Why Bank of Montreal Stock Rallied 41% in 2021

Bank of Montreal (TSX:BMO)(NYSE:BMO) stock could continue soaring in 2022. Here’s why.

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Bank of Montreal (TSX:BMO)(NYSE:BMO) has started the new year on a positive note by rising 3.6% to $141.07 per share on January 4. These gains were an extension of the ongoing rally in BMO stock, as it posted nearly 41% gains in 2021 against a 21.7% increase in the TSX Composite Index. Before we discuss whether its stock is worth buying in 2022, let’s take a closer look at some factors that fuelled a rally in Bank of Montreal’s stock last year.

Bank of Montreal stock

In the fiscal year 2020 (ended in October 2020), Bank of Montreal — just like all its peers — faced big operational challenges due to the coronavirus-driven shutdowns and restrictions. Despite facing these challenges, BMO continued to maintain strong capital and liquidity positions. Its total revenue for the fiscal year rose by 3.1% from a year ago. However, the pandemic-related measures and more spending to modernize its technology drove the bank’s overall expenses higher, hurting its bottom line. As a result, its adjusted earnings for the fiscal year fell by 18.2% YoY (year over year) to $7.71 per share.

Investors’ high hopes about Bank of Montreal’s financial recovery in the fiscal year 2021 drove its stock higher by 24.3% in the fourth quarter of the calendar year 2020. Despite these gains towards the end of 2020, BMO stock ended the year with about 4% losses.

But Bank of Montreal didn’t disappoint investors, as its earnings growth significantly improved in the fiscal year 2021. Its adjusted net profit for the fiscal year rose by about 70% YoY to $8.4 billion with a solid profit margin of about 33.5%. This profit margin was significantly higher than 20.8% in the fiscal year 2020 and 26.1% in 2019.

Positive operating leverage in each of Bank of Montreal’s well-diversified businesses was one of the key factors that drove a sooner than expected recovery in its earnings growth. In addition, its wealth management and capital markets segment continued to perform well, even as the pandemic-related restrictions started easing. These positive factors boosted investors’ confidence, driving a sharp rally in BMO stock in the calendar year 2021.

Is BMO stock worth buying in 2022?

Bank of Montreal is currently the fourth-largest Canadian bank based on its market cap of about $91.4 billion. The bank has a decades-long history of delivering handsome returns to investors along with attractive dividends. Excluding its dividends, BMO stock has risen by about 47% in the last three years.

After staging a sharp financial recovery in the fiscal year 2021, analysts expect its earnings-growth trend to moderate a bit in the ongoing fiscal year. Nonetheless, consistently rising economic activities in the post-pandemic phase could help it post better-than-expected earnings growth, which could help its share prices continue soaring in 2022.

Currently, BMO stock offers a strong dividend yield of around 4%, making it even more attractive for long-term investors who want to buy some reliable dividend stocks.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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