BMO vs. BNS: Which Bank Stock Is a Better Buy?

Let’s explore whether Bank of Nova Scotia or Bank of Montreal is a better buy today seeing as they have experienced a dip in their shares recently.

| More on:
A worker uses a double monitor computer screen in an office.

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stocks of both Bank of Montreal (TSX:BMO) and Bank of Nova Scotia (TSX:BNS) offer nice dividend income to investors. Let’s explore which might be a better buy today seeing as they have experienced a dip in their shares recently. BMO is down about 11% from this year’s high, while BNS stock has declined approximately 8%.

BMO Total Return Level Chart

BMO, BNS, and XIU 10-year Total Return Level data by YCharts

Past performance

Let’s compare their past performance, which could give some insight into their future return potential. According to data from YCharts, in the last 10 years, BMO and BNS stock delivered annualized returns of about 8.6% and 3.9%, respectively, per year.

In comparison, the Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy, delivered total returns of about 7.3% per year in the period. So, BMO slightly outperformed the market, while BNS stock greatly underperformed.

Dividend

At writing, Bank of Nova Scotia stock offers a juicy dividend yield of almost 6.7%. However, its payout ratio is higher than normal, with the trailing 12-month (TTM) payout ratio being 76% of its net income available to common stockholders. Based on adjusted earnings, BNS stock’s payout ratio is estimated to be approximately 66% this fiscal year.

Bank of Montreal stock offers a lower dividend yield of about 5.4%. Its TTM payout ratio was safer at 47% of its net income available to common stockholders. Based on adjusted earnings this fiscal year, BMO stock’s payout ratio is estimated to be approximately 57%.

Although BMO stock offers a smaller dividend yield, its dividend appears to be safer. Besides, a dividend yield of over 5% is pretty good for a blue-chip dividend stock. Its 10-year dividend-growth rate of 7.0% is also higher than BNS stock’s 5.7%.

Recent results

In the first half of the fiscal year, Bank of Nova Scotia reported revenue growth of 5.7% to $16.8 billion, while its non-interest expenses rose 4.6% year over year to $9.5 billion. Provision for credit losses (PCL) of almost $2 billion was another drag on earnings. Thankfully, the income tax expense in the period was about a third lower than a year ago. As a result, it reported net income of $4.3 billion, up 10% year over year. And the diluted earnings per share (EPS) climbed 7.6% to $3.25. The adjusted EPS fell 7.4% to $3.27.

In the same period, Bank of Montreal reported revenue growth of 21% to $15.6 billion. The bank kept good control of non-interest expenses, which rose 3.5% year over year to $10.2 billion. PCL of $1.3 billion was a drag on earnings. Ultimately, its adjusted earnings per share (EPS) fell 13.5% to $5.14.

Which bank stock is a better buy?

Both stocks have been in a downtrend since early 2022. However, given BMO’s better long-term track record of delivering returns and the fact that it offers a lower dividend yield today, which indicates the market thinks it’s a lower-risk stock, BMO is probably a better buy.

Unless an investor wants more income now, there’s not much reason to buy BNS over BMO at the moment. Of course, there’s nothing stopping an investor from buying a mix of both to get a blend of their yield and return prospects.

Should you invest $1,000 in Bank of Montreal right now?

Before you buy stock in Bank of Montreal, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bank of Montreal wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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.

Fool contributor Kay Ng has positions in Bank Of Montreal and Bank Of Nova Scotia. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Bank Stocks

open vault at bank
Bank Stocks

3 Canadian Bank Stocks to Shield Against Market Downturns

Canadian bank stocks are some of the best options on the market, and these three are probably the top ones.

Read more »

calculate and analyze stock
Bank Stocks

1 Canadian Stock Down 7% to Buy and Hold for a Long Haul

Now is the time to take advantage of this top-notch Canadian stock, buying it while it's still down.

Read more »

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold in 2025?

Royal Bank is down 6% in 2025. Is it time to buy the dip?

Read more »

chart reflected in eyeglass lenses
Stocks for Beginners

Seize the Dip: Investment Opportunities Await This April

If you're looking for one and only one opportunity during a market dip, buy this top stock.

Read more »

hand stacks coins
Bank Stocks

Here’s How Many Shares of IGM Financial You Should Own to Get $1,000 in Yearly Dividends

Besides its attractive dividend income, IGM Financial’s strong long-term growth fundamentals could help its stock outperform the broader market in…

Read more »

A person looks at data on a screen
Bank Stocks

Where Will Bank of Montreal Stock Be in 5 Years?

These factors give Bank of Montreal (TSX:BMO) stock the potential to outperform the broader market in the next five years.

Read more »

calculate and analyze stock
Bank Stocks

Where Will TD Stock Be in 3 Years?

Here are some key reasons why I expect TD stock to reward patient investors handsomely over the next three years.

Read more »

Pile of Canadian dollar bills in various denominations
Bank Stocks

1 Dividend Stock Down 10.2% to Buy Now for Lifetime Income

A high-yield stock with a nearly 200-year dividend track record is a screaming buy right now.

Read more »