Single-stock investing remains a worthwhile strategy, but today’s practical advice is diversifying. You reduce or spread the risk if you hold stocks from various sectors. However, if you’re a Tax-Free Savings Account (TFSA) investor, you can buy one high-quality stock now and hold it forever.
Bank of Montreal (TSX:BMO) is a no-nonsense investment if you build a nest egg through your TFSA. This $97.4 billion bank, Canada’s oldest financial institution, has endured two World Wars, the Great Depression, and numerous financial crises since its founding in 1817.
There are compelling reasons to own BMO besides its strong capital position. With a fresh $7,000 annual contribution limit in 2025, consider making BMO your anchor stock in your TFSA stock portfolio if it isn’t yet.
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Dividend pioneer
Due to its lengthy dividend payment history, dividend pioneer BMO is the undisputable choice of passive-income investors. The track record is 195 years and counting, which no investor or retiree could outlive. If you invest today, the share price is $134.09 (+7.37% year to date), and the dividend yield is 4.64%. The payout frequency is quarterly.
Strategic acquisition
BMO has growth goals, and acquiring Bank of the West in February 2023 is one way to expand its presence in key U.S. growth markets. The footprint in 32 states would accelerate the growth of BMO’s national specialty commercial businesses and give more customers access to its digital banking platform.
Darryl White, chief executive officer of BMO Financial Group, said about the strategic acquisition, “We will deliver a highly competitive offering to new growth markets, combining the strength of our digital banking platform and a strong team of bankers to generate leading customer growth.”
Bank of the West operates in the largest and fastest-growing U.S. markets, which should also help fuel BMO’s growth. The US16.3 billion deal is the most significant in Canada’s banking history. BMO completed the core and digital platform after eight months.
According to Mahen Namaswayan, Head of Technology and Operations Mergers and Acquisitions at BMO, the bank boasts a Digital-First model. It will deliver greater convenience and speed to customers while providing scale and product options across the U.S.
Financial performance
The high interest rate environment affected bank stocks, including BMO. Fortunately, the Bank of Canada’s rate-cutting cycle is ongoing, and inflation has moderated. In the first three quarters of fiscal 2024 (nine months ending July 31, 2024), BMO’s net income rose 84.2% year over year to $5 billion.
However, provision for credit losses (PCL) increased 29.2% to $2.2 billion from a year ago. Nonetheless, BMO announced a 5% dividend hike for Q4 fiscal 2024. “With our strategic goals firmly in place, a strong balance sheet, robust capital and liquidity, we are well positioned to deliver sustainable returns to our shareholders,” White said.
Lifetime contribution limit
The TFSA lifetime contribution limit will rise to $102,000 on January 1, 2025, for those who turned 18 before 2009 and have never contributed to a TFSA. An investment of the same amount in BMO converts into $1,183.20 in tax-free, pension-like quarterly income, and the principal remains intact.
