The Canadian banks have been beaten down quite badly over the past year. The U.S. banking crisis led caused several big banks, including Bank of Montreal (TSX:BMO), to add to their losses in March. Though the failure of Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse came fast and furious, I don’t think Canada’s Big Six banking giants should have been under as much pressure as they were.
Undoubtedly, Bank of Montreal felt a bit more pressure than some of its peers due to its U.S. presence. Though BMO isn’t the most U.S.-focused bank in Canada (that title would go to TD Bank), the acquisition of U.S. regional player Bank of the West didn’t seem to do the firm any favours this time of year.
For now, U.S. banking fears seem to have calmed. Though only time will tell what the next move will be, with some industry pundits calling for more pressure ahead. Even if a few more regional banks are poised to flop due to overinvestments in long-duration bonds, BMO is not a bank that will be knocked out from this mini-banking crisis.
BMO stock: Built to make it through hard times, too
BMO survived the Great Financial Crisis of 2008. And it’s poised to sail through the more challenging recession that some believe will land in the second half of 2023. Like it or not, the Big Six banks have tier-one capital ratios, meaning they have a lot of financial wiggle room to make it through a period of economic chaos.
Though recession-driven loan losses and pressure from mortgage books could weigh on capital ratios, I still view the big banks as having more than enough to make it through a hard-landing type of economic downturn.
Down around 21.5% from its all-time high of $152 and change per share, I view BMO stock as an intriguing value for long-term investors. The stock trades at 7.56 times trailing price to earnings, with a 4.76% dividend yield. The depressed multiple and juicy dividend yield are the stars of the show. However, it takes guts to get into a bank stock at a time like this. Like during 2020 or 2008, banks were scary places to be. When the going gets tough, it’s these scary places that tend to offer the biggest long-term bang for your buck.
While shares of BMO could certainly get cheaper over the course of the year, I think averaging down into the name could prove wise. It’s never easy to catch a falling knife or try to tame a bear market. However, BMO remains a well-run bank that can deal with losses in its bond portfolio. Further, BMO has hedges in place (interest rate swaps) that can help dampen the blow to bond portfolios caused by the recent uptick in interest rates.
The Foolish bottom line for investors
Banks aren’t spared when the stock market takes a dive. However, those willing to hold for at least 10 years don’t have to wait for the storm to calm before dipping a toe in the waters. The 4.76% yield is well covered and will likely keep on growing from here.