Yahoo Finance Bank of Montreal (TSE:BMO) Is Paying Out A Larger Dividend Than Last Year
The board of Bank of Montreal (TSE:BMO) has announced that it will be increasing its dividend on the 28th of February to CA$1.33. This makes the dividend yield about the same as the industry average at 3.1%.
View our latest analysis for Bank of Montreal
Bank of Montreal's Earnings Easily Cover the Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Bank of Montreal was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Over the next year, EPS is forecast to expand by 8.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.
Bank of Montreal Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was CA$2.80 in 2012, and the most recent fiscal year payment was CA$5.32. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Bank of Montreal has impressed us by growing EPS at 11% per year over the past five years. Bank of Montreal definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Bank of Montreal is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 10 Bank of Montreal analysts we track are forecasting continued growth with our free report on analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
