Some of the market’s premier dividend-growth stocks have seen their shares surge and yields compress in the past year. Indeed, it might feel like you missed the boat if you’re having to buy shares of a Big Six Canadian bank stock at close to an all-time high while the dividend yield is hovering around its lowest levels in recent memory.
While waiting around for the next valuation reset (or market-wide correction) might open up another window to get more yield for less, I’d argue that the tailwinds hitting the Canadian banks might not be all too quick to subside. Indeed, the Canadian banks might be fresh off a hot past year of gains, but, at the same time, these structural forces might stick around for a while longer, and that could pave the way for more solid quarters and the occasional big beat, even in the face of slightly higher expectations.
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Bank of Montreal
In any case, this piece will have a look at shares of Bank of Montreal (TSX: BMO), which seemingly can’t stop rallying. With shares gaining another 1.2% on Tuesday’s session (one that saw the TSX Index march higher while the Nasdaq 100 slipped), shares of BMO are at a fresh new high.
But with a price-to-earnings (P/E) ratio nearing 20.0 times (that’s very expensive for a bank), questions linger as to whether it still makes sense to hang onto a position here or if cutting and waiting for a pullback makes the most sense as a value investor. Just because the multiple is hefty, though, doesn’t mean it’s time to ring the register, especially with BMO, a bank that’s already proven it’s worthy of a premium price of admission.
Perhaps the biggest reason to keep buying shares of BMO despite the heftier price tag lies in the runway to grow in the U.S. market. Indeed, the Bank of the West acquisition went right in more ways than one. What’s more, though, is that it could act as a launch pad for more growth south of the border.
Worth paying a premium?
Of course, even with a solid U.S. growth driver, 20.0 times P/E is a bit of a stretch, to say the least. Either way, the big bank also stands to post big wins as commercial merger and acquisition activity picks up. If rates start gravitating lower and industry players look to consolidate, it’s BMO that might be best exposed, thanks to its stellar footing on the commercial side.
In my humble opinion, it’d be best to wait for a bit of a retreat of at least 10%. Though I’m really not sure if we’ll get one before the year comes to a close. Either way, I’d look for the dividend hikes to keep on coming. The bank has quietly raised its dividend annually for a number of decades now, through thick and thin.
Now that the winds are at its back, I’d expect the generous raises to keep on coming. Sure, the 2.7% yield isn’t anything to write home about, but the dividend-growth streak is, and that might be enough reason to justify buying at these heights.
