Update: Bank of Montreal (TSE:BMO)
7 January 2008Let’s have a look at one of the current members in our portfolio of superior dividend yielding socks - Bank of Montreal which trades on the TSE and the NYSE under the symbol BMO.
We first looked at Bank of Montreal back on July 9th, 2007.
Back then, it was paying a juicy dividend of 3.94% which of course caught our eye.
Looking back at my 3 valuation techniques, I came up with the following model prices for BMO:
- Average high dividend yield model price of $74.18 (stock price required to earn the average high dividend yield of 3.67%)
- Graham number of $55.04
- Discounted present value model price of $56.96
So, when we analyzed this stock back then, the current price was $69.00. So one of the models had it as a buy, but the other two did not.
Well, times have changed. As of close on Friday, January 4th, the price of BMO was $55.27. And it is now sporting a dividend yield of 5.07%! As you can see, the current price is now in line with the both the Graham number and the discounted present value model prices. And the dividend yield well exceeds the average high dividend yields of the last 10 years.
Of course, the issue is whether or not this dividend is safe and what type of dividend growth we can expect in the future.
The President and CEO, William Downe, stated in the 2007 Annual Report that
“Our exposure to subprime is indirect and very limited, but all markets have been affected and will likely exhibit continuing uncertainty about price and liquidity going into the next year. “
Even if this is not the bottom, picking up BMO with a 5% dividend yield seems like a fairly safe bet.
Full Disclosure: I do own shares in BMO.
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on January 7th, 2008 at 9:41 am
Personally I like BNS better at this valuation level. Scotia looks really cheap under $48, and yields 3.9%. BMO’s yield is attractive but I am concerned with their potential for earnings growth in the short term. Their pay out ratio is also much higher than Scotia’s.
A 5% yield for a Canadian bank is hard to pass up though…
on January 7th, 2008 at 6:47 pm
Good to see your thoughtful stock analyzes again!
Best Wishes,
D4L
on January 7th, 2008 at 7:16 pm
The yields on the Canadian banks are indeed very tempting…
Quick question though: Does anyone remember what happpened in the August 1998 timeframe? It looks as though the banks took a big hit back then. I just can’t recall the reason. Any thoughts?
on January 8th, 2008 at 12:19 am
Welcome back.
So how bout another look at CIBC?
Mike
on January 12th, 2008 at 2:21 am
DM:
I recently picked up BMO at this level. The market still seems nervous about their SIV’s. I agree that their earnings potential in the short term may be lower, but long term..
RickT
on January 14th, 2008 at 3:08 pm
Hi,
I’m a newbie, but I used the 2007 Annual report and got some different values for BMO. Are the numbers you are showing from the 2006 Annual report? My analysis gives lower numbers for all three although it still shows a buy using the “annual high div yield” model but the Graham number and the discounted present value model both give values around $50.
Just want to make sure I did the calcs right.
Mark Y
on January 15th, 2008 at 1:23 pm
D4L could you contact me via my email? I tried to contact you via the “contact me” section, but the form was not active.
on January 19th, 2008 at 1:07 pm
Joe, appreciate your enthusiasm. As a freshman to the dividend investment, I regard your blog as professional and unbiased advise better than any advisor I can get. Thank you again!
on January 19th, 2008 at 5:10 pm
Welcome back! I look forward to reading more great posts!
on February 5th, 2008 at 10:42 am
I am a freshmen too and am happy for the guidance and the full disclosure that add credibility to your recommendations.
on February 24th, 2008 at 12:02 pm
I enjoying reviewing your site. Your site focus tends to highlight Canadian dividend paying stocks while my site tends to focus on US dividend paying stocks. Would you like to exchange links? My site is located at http://disciplinedinvesting.blogspot.com/
Keep up the good work.
David
on April 3rd, 2008 at 11:03 am
Average Joe,
I have noticed that you haven’t posted anything on this blog for 3 months now. Is everything ok? Can we expect to get more blog updates in te future?
http://dividendgrowth.blogspot.com/