Blue chip stocks: Bank of Montreal continues to grow beyond Canada

Bank of Montreal

Today, we look at a Canadian bank stock that has consistently paid dividends for 186 years. Bank of Montreal has benefited both from expansion outside of Canada and low interest rates in recent years.  The bank continues to make acquisitions in the U.S. and the U.K. Recently it agreed to buy General Electric’s transportation-financing business, adding $11.5 billion in assets. Low interest rates have also helped the bank by increasing demand for loans. Between 2010 and 2014, the bank’s earnings rose by more than 50% and over the past three years, BMO has raised its dividend six times. We recommend BMO as a blue chip stock to buy for conservative investors.

BANK OF MONTREAL (Toronto symbol BMO; www.bmo.com) is Canada’s fourth-largestbank, with $672.4 billion of assets.

The bank has steadily expanded beyond Canadain recent years. For example, in 2011, it acquiredWisconsin-based banking firm Marshall & Ilsley for$4.0 billion in stock. That more than doubled thenumber of branches Bank of Montreal operates inthe U.S. and added two million customers.


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In 2014, it paid $1.3 billion for U.K.-based wealth management firm F&C Asset Management, which sells investment services to individuals and institutional clients, such as pension plans and insurance companies.

Meantime, the bank is benefiting as low interest rates prompt more consumers to take out loans. Low rates and acquisitions boosted its revenue by 36.6%, from $12.2 billion in 2010 to $16.7 billion in 2014 (fiscal years end October 31).

Earnings jumped 50.8%, from $2.9 billion in 2010 to $4.4 billion in 2014. Per-share profits rose a slower pace of 37.0%, from $4.81 to $6.59, on more shares outstanding.

The bank recently agreed to buy General Electric’s transportation-financing business, which loans money to commercial truck and trailer manufacturers, dealers and buyers in the U.S. and Canada.

Bank of Montreal didn’t say how much it’s paying, but this business has roughly $11.5 billion in assets, consisting of loans (83% of the portfolio) and leases (17%). It should increase the bank’s annual earnings by 3%.

Blue chip stocks: Bank has increased its dividend payout six times in past three years

Thanks to the improving economy, more consumers and businesses are repaying their loans on time.

However, stock market volatility has made loans at the bank’s securities-trading division riskier. As a result, its loan-loss provisions in the quarter ended July 31, 2015, rose 23.1%, to $160 million from $130 million a year earlier.

The oil-price drop could also force Bank of Montreal to write down some of its loans to oil and gas producers. However, these borrowers account for less than 2% of its loan portfolio.

Bank of Montreal has paid dividends each year since 1829 and has increased its payout six times in the past three years. The current annual rate of $3.28 a share yields 4.3%.

The bank likely earned $6.83 a share in fiscal 2015, but the GE purchase and the likelihood of higher interest rates should push up its 2016 earnings to $7.12 a share. The stock trades at just 10.8 times that forecast.

Recommendation in The Successful Investor: BUY 

For our advice on how to identify the real blue chip stocks from the ones resting on their reputation, read What are blue chip companies?

For more on the best way to strengthen your portfolio with blue chip stocks, read 5 profitable tips for investing in blue chip stocks.

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