After a challenging stretch, Bank of Montreal (TSX:BMO) could be setting the stage for a sharp rebound. The dividend stock climbed more than 35% over the past year from its lows, and its latest earnings show the potential for even more upside if the bank can execute on its growth and efficiency plans. While it’s not immune to the headwinds facing the sector such as higher provisions for credit losses, slower loan growth, and a competitive deposit market, BMO’s improving fundamentals and capital strength make a strong case for a comeback story.
Into earnings
In the second quarter of 2025, BMO reported adjusted net income of $2.1 billion, up slightly from last year. Adjusted earnings per share (EPS) hit $2.62. Return on equity, while not yet back to pre-pandemic highs, ticked in at 9.8% adjusted, reflecting steady improvement from a weaker 2024. Revenue growth was healthy across all business lines.
Canadian personal and commercial banking benefited from higher net interest income, wealth management riding strong markets, and capital markets delivering solid performance despite elevated expenses. The dividend stock also increased its quarterly dividend to $1.63, up 5% from a year ago, and continued its share buyback program with seven million shares cancelled in the quarter.
What to watch
The biggest drag on results has been credit provisions, which rose to $1.1 billion from $705 million a year ago. That’s a reality across the banking sector as economic growth moderates and consumer delinquencies creep higher. For BMO, most of the increase came from Canadian commercial banking and unsecured consumer lending, though provisions in U.S. commercial banking and capital markets actually declined. Management is also proactively building performing loan allowances in anticipation of slower credit conditions, a move that dents current earnings but improves resilience for the future.
Wealth management was another standout, with net income climbing 13% year over year. Strong equity markets and net sales boosted asset management revenue, while higher net interest income added a lift. Insurance results softened due to market movements, but the segment remains a stable contributor to earnings.
Looking ahead
On the growth side, BMO’s Canadian operations remain its profit engine, but the U.S. business continues to be a strategic pillar. While U.S. personal and commercial net income dipped modestly on a U.S. dollar basis, currency tailwinds and balance sheet optimization helped offset some of the softness. A strategic sale of a non-relationship U.S. credit card portfolio may have created a short-term loss. Yet it frees up capital for more profitable lending and investment opportunities.
One of BMO’s strongest advantages right now is its capital position. With a Common Equity Tier 1 ratio of 13.5%, the bank has plenty of buffer to weather credit shocks while still rewarding shareholders. That’s important. It gives management flexibility to keep investing in technology, expand its U.S. footprint, and maintain competitive dividends even in a tougher lending environment. Dividends that could add $410 annually from a $10,000 investment.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| BMO | $157.15 | 63 | $6.52 | $410.76 | Quarterly | $9,898.45 |
Looking ahead, the key to a sustained rebound will be proving that the worst of the credit cycle is behind it. If provisions can stabilize and revenue growth keeps outpacing expense growth, return on equity should continue to climb. Market confidence could also improve if BMO shows progress in integrating post-acquisitions and extracting more efficiency from the U.S.
Bottom line
For investors, the combination of a growing dividend, ongoing share buybacks, and a forward price/earnings (P/E) ratio in the low double digits makes the risk-reward profile appealing. Especially compared to historical valuations. BMO may not roar back overnight, but with a stronger capital base, diversified revenue streams, and steady operational momentum, it has the ingredients for a solid multi-year recovery. If the economic backdrop cooperates, this dividend stock could indeed earn its title as a comeback kid.
