Canada’s big banks are often regarded as some of the best long-term stocks to buy on the market. While there’s a good reason for that, the past year has proven to be a volatile one for the big banks. In fact, some might argue the case to buy, sell, or hold isn’t as clear as it once was.
Let’s take a look at Bank of Montreal (TSX:BMO) and determine if this is the right time to buy, sell, or hold the bank.
Why BMO makes sense as an investment
There are more than a few reasons why the big banks are great investment options. Beyond the juicy dividends they offer (more on that in a bit), the banks also offer stellar growth potential from well-executed international expansion.
In the case of BMO, that international exposure is focused on a growing presence in the U.S. market. Earlier this year, BMO completed the acquisition of California-based Bank of the West for a whopping US$16.3 billion.
The transaction bolstered BMO’s standing in the lucrative U.S. market to 32 states with over 1,000 branches. The deal also brought with it 1.8 million new customers with billions in loans and deposits.
In other words, BMO holds significant promise for investors looking for long-term growth.
But is that enough?
Perhaps holding BMO makes sense?
For those investors who are already invested in BMO, there’s another question worth considering. Should you continue to hold on to BMO or sell? The question as to whether an investor should buy, sell, or hold is never easy.
Until recently, BMO was trading down, like much of the market in 2023. A big reason for that was the volatility brought on by inflation and rising interest rates.
However, in the last month, BMO’s stock price has surged 20%. Year to date, the stock is now up nearly 10%, erasing all of those prior losses.
For long-term investors, this latest stock price surge is just the tip of the iceberg. If interest rates begin to drop next year (as many expect), credit-loss provisions will decrease. This will lead to much-improved results during earnings season over the latest update.
In that latest update, BMO reported adjusted net income of $2,150 million, with an adjusted earnings per share of $2.81. In the same period last year, the bank posted net income of $2,136 million and adjusted earnings per share of $3.04.
One of the main differences over the prior period was the provision for credit losses. In the most recent quarter, that amounted to $446 million, whereas in the same period last year, it was just $226 million.
Here’s the real reason you may want to buy BMO
One of the main reasons why investors continue to flock to Canada’s big banks for the dividends they offer. In the case of BMO, that quarterly dividend currently works out to an impressive 4.49% yield.
This means that investors who drop $35,000 as part of a well-diversified portfolio can expect to earn an income of over $1,500. BMO also provides investors with annual upticks to that dividend, making it a great long-term option. In fact, BMO has been paying out dividends without fail for nearly two centuries.
This fact alone makes BMO one of the best long-term options on the market right now for growth and income-seeking investors alike. When you throw in the growth potential and defensive appeal from its domestic segment, it becomes an investment that is too hard to ignore.
Should investors buy, sell, or hold BMO?
No investment is without risk, but when it comes to BMO, investors get growth potential, a healthy income, and a sizable defensive moat.
In my opinion, BMO is an excellent investment and should be a core holding as part of any larger, well-diversified portfolio.
