Canada’s Big Six banks reported mixed earnings results in fiscal 2024, with increased business lending and mortgage activities in Q4 2024. The Bank of Canada cut its policy rate four times before the presentation of the quarterly reports. Its fifth and last cut for the year was December 11, 2024.
The Office of the Superintendent of Financial Institutions (OSFI) maintained the Domestic Stability Buffer (DBS) at 3.5%. Canada’s banking giants need to have a buffer or rainy-day fund to cover losses in case of financial uncertainties. The OSFI believes the country’s financial system remains generally stable after assessing its vulnerabilities and risks.
The Bank of Montreal (TSX:BMO) is the pre-eminent choice for investors seeking exposure to Canada’s banking sector. Its share price has risen 2.1% in the last five days following an upgrade by sector peers. If you invest today, the share price is $142.10, while the dividend offer is 4.6%.
Stock upgrade from peers
On January 8, 2025, analysts at the Royal Bank of Canada raised the rating from “sector perform” to “outperform” and increased their price target for BMO to $161 (+13.3%). The Bank of Nova Scotia and Canadian Imperial Bank of Commerce have the same ratings for BMO with price targets between C$150 and C$160.
The bank analysts agree that the 5% year-over-year dividend increase announced last month reflects the bank’s financial strength and commitment to rewarding shareholders. BMO rewarded investors with an overall return of 11.7%-plus in 2024 on top of the dividend hike.
Financial performance
“We’re entering 2025 with a strong foundation and significant balance sheet capacity for growth,” said Darryl White, CEO of BMO Financial Group. In the 12 months ending October 31, 2024, revenue increased 12.1% to $32.8 million compared to fiscal 2023.
BMO’s net income climbed 65.1% to $7.3 billion from a year ago, notwithstanding the 159.8% year-over-year jump in provision for credit losses (PCLs) to $3.1 billion. The Personal and Commercial business segments in Canada ($11.4 billion) and the U.S. ($9.8 billion) contributed the most to total revenues in fiscal 2024. The contribution from the Bank of the West will also show in the coming quarters.
According to White, BMO delivered good pre-provision pre-tax earnings growth across all operating groups. It also met management’s commitment to positive operating leverage for the last three quarters and the whole year. He expects the quarterly provisions to moderate through 2025 as the business environment improves.
Screaming buy
BMO is a buy-and-hold stock, especially for income-focused investors. The dividend payment history of Canada’s oldest and third-largest financial institution is unmatched; the track record is 195 years and counting. This $103.7 billion bank is the TSX’s dividend pioneer.
On January 14, 2025, the London Metal Exchange (LME) approved and accepted BMO as a category 2 member. The world’s oldest and largest market for industrial metals will soon announce when the Canadian bank stock will start trading.
The positive outlook of sector peers, commitment to increasing shareholder returns, and exposure to investors outside North America will make BMO a “strong buy” in 2025.
