Do you want $302 per year in dividend income? It’s a pretty reasonable passive income goal to hit, even for a beginner. It takes just $10,000 invested at a 3% portfolio yield to get to $302 per year in passive dividend income. If you buy stocks with above average yields, you can even get there with less than $10,000 invested. In this article, I will explore one TSX stock that can get you to $302 in annual passive income with just $6,565 invested.
Bank of Montreal
The Bank of Montreal (TSX:BMO) is a Canadian bank stock with a 4.6% dividend yield. Costing $131 per share, BMO can get you about $302 per year in passive dividend income if you buy just 50 shares.
Why it pays so much dividend income
BMO stock pays a lot of dividend income because its stock is relatively cheap. At today’s prices, BMO trades at just 12 times earnings, when the S&P 500 trades at more like 24 times earnings. When a company’s stock is cheap compared to the amount of profit it produces, it can afford to pay investors back a high percentage of their investment. Below you can see a table that shows how you can get to $302 per year in dividend income by buying just 50 shares of BMO.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Bank of Montreal | $131 | 50 | $1.51 per quarter ($6.04 per year) | $75.50 per quarter ($302 per year) | Quarterly |
Will its future be as good as the recent past?
As we’ve seen, BMO has a lot of dividend potential if everything goes well with the company. However, everything going well with the company is not a foregone conclusion. Its stock has been beaten down in the markets – perhaps investors are selling it off with good reason.
One thing about BMO that gives pause is its recent acquisition of Bank of the West. The deal cost $13.5 billion, yet BMO’s earnings have actually declined since it closed. Did BMO really waste $13.5 billion buying a California bank from BNP Paribas? It certainly looks like it.
Bank of Montreal is less profitable than its peers. Its profit margin and return on equity – 17% and 7% –are much lower than those of TD Bank and Royal Bank of Canada. Its earnings growth is also negative over one-, three-, and five-year timeframes. Ouch.
Despite all of these negatives, BMO stock trades at 12 times earnings, which is a higher multiple than TD Bank trades at. Overall, it looks like BMO stock is not the best deal in Canadian banking today.
Foolish takeaway
I opened this article with a discussion of how much dividend income can be earned by investing in BMO stock. The amount is definitely substantial, but BMO definitely isn’t the most prosperous Canadian bank today. Its margins are relatively low, its growth is negative, and its most recent M&A deal doesn’t appear to have done anything for shareholders. On the whole, I don’t consider BMO the best Canadian bank to invest in today.
