asset management

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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Brookfield Property Partners LP, $29.75, symbol BPY.UN on Toronto (Units outstanding: 262.8 million; Market cap: $21.3 billion; www.brookfieldpropertypartners.com), owns, operates and invests in commercial real estate worldwide. Its portfolio includes:

• 243 office properties totalling over 114 million square feet, mainly in leading commercial markets like New York, London, Los Angeles, Washington, D.C., Sydney, Toronto, Houston, Calgary and Perth;
• 172 regional malls and stand-alone stores containing 154 million square feet in the U.S. and Brazil. The company mainly holds its retail properties through its 29% interest in General Growth Properties, Inc. and its 33% stake in Rouse Properties, Inc.;
• Roughly 44 million square feet of industrial space across 164 properties, mainly consisting of warehouses in North America and Europe, with an additional 11 million square feet under construction;
• About 26,900 multi-family units across 89 properties in the U.S. and Canada;
• Eleven hotels with over 8,560 rooms across North America and Australia; and
• Over 300 properties leased to automotive dealerships in the U.S. and Canada.

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BANK OF MONTREAL $77 (Toronto symbol BMO; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 642.5 million; Market cap: $49.5 billion; Price-to-sales ratio: 2.9; Dividend yield: 4.3%; TSINetwork Rating: Above Average; www.bmo.com) is Canada’s fourth-largest bank, with $672.4 billion of assets. The bank has steadily expanded beyond Canada in recent years. For example, in 2011, it acquired Wisconsin-based banking firm Marshall & Ilsley for $4.0 billion in stock. That more than doubled the number of branches Bank of Montreal operates in the U.S. and added two million customers. 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....

Low interest rates are cutting the income these lenders earn on new loans. At the same time, they’ve had to increase the rates they pay out to attract depositors, which has squeezed their margins. In response, they’re making acquisitions and cutting costs. These moves should fuel their earnings, particularly as interest rates will likely rise in 2016. WELLS FARGO & CO. $55 (New York symbol WFC; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 5.1 billion; Market cap: $280.5 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.7%; TSINetwork Rating: Average; www.wellsfargo.com) operates through three divisions: Community Banking provides mortgages, loans, credit cards and other financial services (57% of 2014 revenue, 59% of earnings); Wholesale Banking supplies business loans (27%, 32%); and Wealth, Brokerage and Retirement offers wealth management, brokerage and trust services to individuals and institutions, such as pension plans (16%, 9%)....

ISHARES S&P/TSX 60 INDEX ETF $20.47 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.18% of assets, and the units yield 3.1%.

The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include.

The index’s top holdings are Royal Bank, 8.3%; TD Bank, 7.7%; Valeant Pharmaceuticals, 6.0%; Bank of Nova Scotia, 5.6%; CN Railway, 4.7%; Suncor Energy, 4.0%; Bank of Montreal, 3.7%; BCE, 3.6%; Enbridge, 3.3%; Manulife Financial, 3.2%; CIBC, 3.0%; Brookfield Asset Management, 2.8%; and TransCanada Corp., 2.4%.

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J.P. MORGAN CHASE & CO. $66 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.7 billion; Market cap: $244.2 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.jpmorgan chase.com) has four main divisions: Consumer and Community Banking, which includes branches and credit cards (45% of 2014 revenue, 44% of earnings); Corporate and Investment Banking, including brokerage and underwriting services (36%, 33%); Asset Management (12%, 10%); and Commercial Banking (7%, 13%). About 75% of Morgan’s revenue comes from the U.S.

The bank is selling some operations and scaling back in other areas. These moves are in response to the Federal Reserve’s plan to impose tougher capital requirements on banks it feels are too big or complex.

For example, it recently agreed to sell its Canadian credit card businesses to Bank of Nova Scotia (Toronto symbol BNS).

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Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or subindex. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

Selling software to call centres has made Enghouse Systems a rising growth stock, but we see plenty of risk in its flurry of acquisitions.

Enghouse Systems, $51.84, symbol ESL on Toronto (Shares outstanding: 26.3 million; Market cap: $1.4 billion; www.enghouse.com), operates through two divisions. Interaction Management (which supplies 70% of total revenue) sells software for managing call centres, while the asset-management business (30% of revenue) provides engineering programs used by utilities, computer and telecommunications companies around the world. In the three months ended April 30, 2015, Enghouse’s revenue rose 25.0%, to $68.7 million from $55.0 million a year earlier, largely due to contributions from acquisitions....

Simplifying operations and boosting its balance sheet under new capital rules, JP Morgan Chase remains one of our top U.S. dividend stocks.