BMO Stock: Should Canadian Investors Buy Now or Wait?

BMO picked up a nice tailwind in the past month. Are more gains on the way?

| More on:
worry concern

Image 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

Bank of Montreal (TSX:BMO) is up 10% in the past month. Investors who missed the bounce are wondering if BMO stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.

BMO stock price

Bank of Montreal trades near $123 per share at the time of writing. The stock slipped as low as $102 in the past year, but is way off the $150 it reached in early 2022.

Created with Highcharts 11.4.3Bank Of Montreal PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

In early February 2023, Bank of Montreal bolstered its American business with its US$16.3 billion purchase of Bank of the West, a California-based regional bank. The deal was announced in late 2021 when bank stocks were near their post-pandemic highs. The acquisition closed right before chaos hit the American regional bank sector. This is one reason investors might have soured on BMO stock in the past year.

More recently, the fiscal Q3 2024 results reported a big jump in provisions for credit losses (PCL) compared to the same period last year with increases occurring in personal and commercial banking operations in Canada and the United States and higher PCL in the capital markets division. High interest rates have put pressure on businesses and households with too much debt. The weak earnings contributed to the late-August plunge in the stock.

Now that both the U.S. Federal Reserve and Bank of Canada have started to reduce interest rates, there should be a decline in PCL at Bank of Montreal in the coming quarters. This will help support profits and can free up more cash for distributions.

Dividend

Bank of Montreal has paid a dividend every year for nearly two centuries. The current annualized payout is $6.20 and provides a yield right now of about 5%. Bank of Montreal has a solid capital position and remains very profitable, so investors should see dividends continue to grow.

Upside

The Bank of the West purchase has been an overhang on the stock, but the purchase should deliver long-term benefits for shareholders. The U.S. market is massive and the Bank of Montreal has successfully grown the U.S. business through acquisitions over the past 40 years.

Time to buy?

Near-term volatility should be expected. Markets are close to all-time highs and the sharp bounce in bank stocks in recent weeks warrants some caution. That being said, BMO should still be a solid pick at this level for a buy-and-hold portfolio. Investors might want to take a half position and look to add to the holding on any new weakness. With a 5% yield, you get paid well to ride out additional turbulence.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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 »