Ground Work In Place For Growth

BMO - Bank of Montreal

Bank of Montreal is a diversified financial services provider and the eighth largest bank in North America by assets.

Bank of Montreal provides a large portfolio of products and services in personal and commercial banking, wealth management and investment banking to a diversified range of customers including more than 12 million individuals, businesses, governments and corporate customers across Canada and the United States. The bank also has a presence in a few countries in Europe, Asia, the Middle East and South America. By geography, Canada is its largest market accounting for over 60% of net income, followed by the US (28%) and other countries (9%).

The bank conducts its business through the operating groups: Canadian Personal and Commercial Banking (41% of net income), U.S. P&C (23%), BMO Wealth Management (18%) and BMO Capital Markets (18%). Bank of Montreal has diversified it business across multiple U.S. and Canadian banking service lines.

Investment Data

Revenue Growth & Market Exposure

BMO’s personal banking segment serves customers with a wide range of products and services, including savings accounts, credit cards, mortgages, etc., while its commercial banking provides small business and commercial banking customers with a broad suite of commercial products and services like business loans, commercial mortgages, etc. The Canadian Personal and Commercial banking is the bank’s flagship business.

Bank of Montreal has an extensive network of more than 900 branches and ATMs. The bank is strategically located across strong regional economies and markets around the world and is in a good position to address the growing cross border needs of corporate customers. It had total assets over $800 billion as of January 2019,

With more than two centuries of existence, the Bank of Montreal has developed an extensive understanding of its client needs and behaviors. As one of Canada’s oldest bank, BMO enjoys a strong reputation and customer loyalty. The bank is strongly focusing on technology deployment and maintained a double-digit growth rate in technology investment last year. It is looking at building new capabilities that will drive customer growth in the future. BMO is deploying innovative measures such as faster product delivery, quicker loan adjudication, intuitive ATMs, etc.

Bank of Montreal’s large North American platform and growing presence in international markets give it an edge over the competition. The bank is focusing on growing its presence in the U.S. with the bank’s U.S. earnings growing tenfold since 2010. It is already a recognized leader in the U.S. commercial banking segment. BMO is expecting to drive one-third of its earnings from the U.S. in the next five years.

BMO - Market Coverage

Dividends

Bank of Montreal boasts of the longest dividend paying history in Canada with 190 years of dividend payouts. The bank sports a very attractive dividend yield of 4% and has grown its dividend payout by 5% CAGR over the last five years. The latest dividend hike was 4% and the bank has a reasonable payout ratio of 48% currently.

Bank of Montreal targets to achieve 7%-10% earnings growth over the medium term which should easily translate into a low single digit dividend growth rate in the future. It is also expecting to reduce its net efficiency ratio (or expense-to-revenue ratio) to 58% by 2021, from 62% currently. Strong investment in digital initiatives to drive client growth, solid customer focus, and a large footprint have helped Bank Of Montreal to consistently deliver solid results.

A well-established and profitable flagship banking business in Canada, and diversified U.S. operations positions Bank Of Montreal well to capture growth opportunities. A solid GDP growth in Canada and an active U.S. business environment act as prominent tailwinds for Bank Of Montreal and should support the bank’s dividend growth streak in the future.

Competition

The Canadian personal and commercial banking segment is highly competitive. Bank of Montreal competes with other leading Canadian banks like TD Bank TSE:TD, Royal Bank TSE:RY, Scotiabank TSE:BNS, Canadian Imperial Bank of Commerce TSE:CM and National Bank TSE:NA. National Bank ranks amongst six largest commercial banks in Canada, while CIBC caters to 11 million individual, small business, commercial, corporate and institutional clients in Canada, the U.S. and around the world. Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAmbassadorAchieverAristocratKingGraph
RYRoyal BankFinancial ServicesBanks7599.58142.8111.3511.118.794.2247.7844.2010.50NONOYESNO1
TDTD BankFinancial ServicesBanks7772.20131.3511.4810.546.304.1046.9842.9612.36NONOYESNO1
BNSScotia BankFinancial ServicesBanks7970.8086.4110.659.906.695.0853.8143.6010.59NONOYESNO1
BMOBank of MontrealFinancial ServicesBanks7391.2658.329.659.669.474.5143.5144.127.56NONOYESNO1
CMCIBCFinancial ServicesBanks89103.1345.949.048.4911.455.5950.3145.769.92NONOYESNO1
NANational BankFinancial ServicesBanks7462.5220.9010.109.986.244.3543.5942.7210.50NONOYESNO1
CWBCanadian Western BankFinancial ServicesBanks6731.762.7711.0310.242.893.5338.7541.128.68NONOYESNO1
FNFirst National Financial CorporationFinancial ServicesBanks4936.502.1914.7512.842.485.2076.60121.908.36NONONONO1
LBLaurentian BankFinancial ServicesBanks6043.451.8510.849.914.016.0865.8442.6410.98NOYESYESNO1
EQBEquitable Group Inc.Financial ServicesBanks6298.821.659.238.1310.781.3412.2441.329.34NONOYESNO1

Bottom Line

Bank Of Montreal has a huge opportunity to expand in the digital market. Increased investment in expanding its footprint both digitally as well as across the US should start bearing fruits in the near future. Strong employment and resilient economic conditions in the US and Canadian markets should help the bank sustain volume growth. A diversified business mix, leading market share, a reputed brand name and strong balance sheet form a huge moat around BMO’s business.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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