After a strong 22% rally over the past six months, Bank of Montreal (TSX:BMO) has continued its upward momentum in 2025, with the stock trading up nearly 4% year to date at $144.90 per share as of January 27. Investors seem increasingly optimistic about Canadian bank stocks, as better-than-feared economic conditions are creating a favourable environment for growth.
As Canada’s third-largest bank, with a market cap of $106 billion, BMO has long been a safe stock for cautious investors. But could BMO stock keep up its momentum in 2025? In this article, I’ll break down key fundamental factors that could impact its performance this year and explore whether the stock is still worth adding to your portfolio this year.
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Main reasons for BMO stock’s recent rally
Two of the key factors behind Bank of Montreal’s strong stock performance in recent months are the broader optimism surrounding the Canadian banking sector and expectations of an improvement in its financial growth trends. Falling interest rates and easing inflationary pressures are expected to provide a supportive environment for loan growth, while improving credit quality could reduce the sector’s risk across the board. Investors expect BMO’s well-diversified business model and strong market position to help it benefit from these favourable economic conditions.
Also, BMO’s strong track record of rewarding its shareholders with reliable dividends year after year seems to be a major driver of its appeal to income-focused investors. Currently, the stock offers an annualized dividend yield of 4.4%.
Mixed financial performance but strong capital position
Bank of Montreal’s financial performance in its fiscal year 2024 (ended in October) was largely mixed but still reflected resilience in a challenging environment. While the bank’s total revenue for the fiscal year rose 13.9% YoY (year over year) to $32.8 billion, its adjusted earnings were slightly down due mainly to higher provisions for credit losses.
In the latest quarter, BMO’s Canadian personal and commercial banking segment showed strength. The segment saw a 5% YoY revenue growth with the help of higher net interest income and deposit balances. Similarly, its wealth management posted a 35% YoY jump in quarterly revenue due to client asset growth, reflecting the bank’s ability to continue leveraging its wealth services despite economic uncertainties.
Lower margins and elevated provisions for credit losses in its U.S. personal and commercial banking segment affected BMO’s overall profitability. Nevertheless, it continued to strengthen its balance sheet, with its common equity tier-one ratio rising to 13.6% in the most recent quarter. This strong financial base provides the bank with enough flexibility for future investments.
BMO stock’s outlook for 2025
Bank of Montreal is trying to leverage AI (artificial intelligence) and other technological innovations to enhance its analytics capabilities to improve customer retention and operational efficiency. Moreover, the bank is continuing to improve its U.S. presence with its acquisition of Bank of the West, which is expected to drive growth in both commercial and retail banking. This strategic expansion could help BMO capture a larger share of the U.S. market while further diversifying its revenue streams going forward. Considering these factors, despite its mixed financial performance in recent quarters, BMO stock continues to be one of the most attractive bank stocks to watch in 2025.
