Here’s why Bank of Montreal (BMO) is a great dividend stock – June 10, 2022

Whether through stocks, bonds, ETFs or other types of securities, all investors like to see their portfolios generate big returns. However, when you’re an income-oriented investor, your primary goal is to generate consistent cash flow from each of your liquid investments.

While cash flow can come from interest on bonds or interest from other types of investments, income investors focus on dividends. A dividend is that coveted distribution of a company’s earnings paid out to shareholders, and investors often think of it by its dividend yield, a metric that measures the dividend as a percentage of the current share price. Many academic studies show that dividends are a large part of long-term returns, and in many cases dividend contributions exceed one-third of total returns.

Bank of Montreal in brief

Based in Toronto, the Bank of Montreal (BMO Free Report) is a financials stock that has seen a price change of -1.6% so far this year. The bank currently pays a dividend of $1.06 per share, with a dividend yield of 4.01% compared to the Banks – Foreign sector yield of 3.51% and the S&P 500 of 1.61%.

In terms of dividend growth, the company’s current annualized dividend of $4.25 is up 25.9% from last year. Bank of Montreal has increased its dividend 5 times year over year over the past 5 years for an average annual increase of 5.93%. Going forward, future dividend growth will depend on earnings growth and the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. Bank of Montreal’s current payout ratio is 38%. That means it paid out 38% of its 12-month EPS as a dividend.

This fiscal year, BMO expects solid earnings growth. Zacks’ consensus estimate for 2022 is $10.43 per share, with earnings expected to rise 1.16% from the year-ago period.

Conclusion

Investors love dividends for a variety of reasons, ranging from tax benefits and lower overall portfolio risk to vastly improved earnings from equity investments. It’s important to keep in mind that not all companies provide a quarterly payment.

For example, it is rare for a technology start-up or a large growing company to offer a dividend to its shareholders. It is more common to see larger companies with more established earnings handing out dividends. During periods of rising interest rates, income-oriented investors should be aware that high-yielding stocks tend to struggle. From this perspective, BMO represents an attractive investment opportunity. Not only is it a solid dividend play, but the stock currently sits at a Zacks rank of 3 (Hold).

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