Canadian banks have reported, and while some saw a climb, many saw a drop. This mainly came down to the banks believing that this year will continue to be difficult. And that meant increasing the provisions of loan losses. What’s more, Bank of Montreal (TSX:BMO) was no exception.
Shares of BMO stock are now down 3% in the last year and trading on the high end at 16.9 times earnings as of writing compared to peers. Still, the stock is up a whopping 21% since bottoming out in October! Yet after earnings, shares dropped by about 4%. So, let’s look into BMO stock on the TSX today.
What happened?
First, the bad news. BMO stock reported earnings that indeed fell below analyst estimates. The stock reported net income at $1.29 billion, and adjusted net income of $1.89 billion. These both missed analyst estimates. The company reported mixed performance across its segments, with personal and commercial banking and global markets experiencing declines.
While the Bank of the West acquisition gave the stock some net income, it also incurred one-time charges. Plus, the overall economic outlook remained uncertain, and the company acknowledged as much during the report.
Analysts weigh in
Overall, BMO stock saw net income drop 19% compared to 2023 levels. Analysts then weighed in, and the results here were mixed as well. Some believe the earnings miss would be temporary, and the stock still has strong fundamentals. This would include its diversified business model and healthy capital base. Plus, there is the high dividend yield to consider.
Yet others were a bit more cautious, believing this is a downward trend compared to the previous year. They worry an uncertain economy will continue to hit the banking sector, and its profit margin remains a concern. In fact, BMO stock’s margins were lower than last year as well.
Looking ahead
So, what about the future of BMO stock? Here, analysts believe there will be modest growth in adjusted net income for 2024 compared to 2023. But this will weigh on several factors. Of course, as mentioned, economic conditions will improve. This would include a better interest rate environment.
However, it also means the full integration of Bank of the West in the near term. This integration should contribute to earnings growth long term, though the next year could continue seeing integration costs on hand.
BMO stock for one believes there will be low-single-digit growth in its core loan business in 2024. Its net interest margin should see modest expansion as well from rising interest rates. As well, BMO stock expects expenses to grow slightly in 2024 from investments and its Bank of the West acquisition.
Is the dividend enough?
All this simply put spells out a lot of uncertainty for BMO stock. But that’s in 2024. Beyond that, BMO stock is quite likely to rebound completely back to all-time highs and climb from there. This means now could be a great opportunity to get in on one of the highest dividend yields out there at 4.91%.
What’s more, it has a strong history of growing that dividend. BMO stock has over 190 years of consecutive dividend payments. That is not a typo! Furthermore, it has maintained a commitment to that dividend. In the near term, this means even near-term earnings growth would support a dividend increase. So, that means you’re likely to continue seeing strong dividend growth, even if the company isn’t doing so well.
Bottom line, it will do well again. We don’t know when, but it will, which makes now a great time to capture its dividend while it’s high.
