Bank of Montreal (TSX:BMO) is up more than 10% in the past few weeks. 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) portfolio focused on dividends and total returns.
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Bank of Montreal share price
Bank of Montreal trades near $147 per share at the time of writing. The stock was as low as $110 in August last year before going on a stellar run that took the share price as high as $150 before giving back some gains in March and the first week of April. In fact, it pulled back to $125 before rallying again through the rest of April and most of May.
Falling interest rates in the United States and the Trump election win spurred the surge that occurred from September to the end of February. Bank of Montreal has a large American business it built over the past 40 years through a series of acquisitions. The largest deal, completed in 2023, was the purchase of California-based Bank of the West. It added 1.8 million customers and 500 branches to the U.S. division, which is now present in 32 states, including a strong position in three of the top five American markets.
Falling interest rates help ease pressure on businesses and households that are carrying too much debt. A Republican win in the White House gave investors more confidence that restrictions on banks in the United States might ease, or at least not get worse in the next four years.
Volatility in 2025 is attributed to the uncertainty caused by tariffs being placed on goods entering the United States. Trade deals will need to be negotiated, and surprise announcements out of the White House will continue to move markets sharply in one direction or the other, depending on the sentiment.
The coming months will likely be turbulent until the market starts to figure out where the tariff situation will eventually settle.
Earnings
Bank of Montreal (TSX:BMO) reported solid fiscal second-quarter (Q2) 2025 results. Adjusted net income for the three months came in at $2.046 billion compared to $2.033 billion in the same period last year. Adjusted earnings per share (EPS) rose to $2.62 from $2.59.
Provisions for credit losses (PCL), however, remain elevated. This has been a trend among the large Canadian Banks in the most recent quarter and indicates ongoing issues caused by elevated interest rates. Bank of Montreal booked PCL of $1.054 billion in fiscal Q2 2025. That’s up from $705 million in the same period last year and slightly higher than the $1.011 billion charge taken in fiscal Q1 2025.
Dividends
The board also announced a $0.04 increase to the quarterly dividend to $1.63 per share, so management can’t be overly concerned about the medium-term outlook for revenue and profits. Bank of Montreal finished fiscal Q2 2025 with a common equity tier-one ratio of 13.5%. This is well above the level required by regulators and is adequate to ride out some economic turbulence or even make another strategic acquisition.
Investors who buy BMO stock at the current level can get a dividend yield of 4.3%. The bank has paid a dividend annually for nearly two centuries.
Time to buy?
Near-term volatility is expected, but BMO pays an attractive dividend that should continue to grow. The bank is positioned well to benefit from expansion in the U.S. economy that should occur once all the trade deals are settled. If you have some cash to put to work, this stock deserves to be on your radar.
