Monday, December 20, 2010

Bank of Montreal Analysis after their Downturn

Bank of Montreal (BMO on the NYSE) is a large financial institution that has recently undergone an acquisition of M&I Corporation, thus pushing their stock price down.  As a little side note - when a company acquires a company, typically (but not always) the acquirer's (BMO in this case) stock usually drops due to the possibility that the acquirer overpaid on acquiring the acquireee (M&I).

The last 2 official trading days Bank of Montreal (BMO) has plunged from $61.66 on Thursday December 16th to $55.58 as of market close on December 20th.  This marks a 9.86% decline in their stock price, thus raising their dividend yield.  Their dividend per share is $2.80 per year and they have a 26.9% annualized dividend growth rate!  Using my basic tools, I will analyze Bank of Montreal.

Payout Ratio:  Their dividend per year, as stated, was $2.80/year per share.  Their Earnings Per Share (EPS) is at $4.94.  Thus: 2.80/4.94 = 56.68%, which falls in between my 40 and 60% preferred payout ratios.

P/E Ratio: Since they trade at $55.58 and their earnings per share is $4.94, the Price to Earnings ratio is - 55.58/4.94 = 11.25 P/E ratio.  This falls well below my preference for an under 15 P/E ratio.  This is also below the industry average, according to, of 14.8.

Current Dividend Yield: Their current dividend yield, when trading at $55.58, is 4.98%.  This is higher than the S&P Average and higher than my preference for an above 3.5%.

Conclusion: They are solid when compared to the industry, they offer a higher yield than the S&P average and offer one of the highest in the financial service areas.  They have recently gone on sale due to the plunge of 9.86% and have payout ratio within my range.  They are a large company with a market capitalization of over 30 billion.  I personally would create a position in this company, as their dividend yield is favorable, they are an extremely large company with a similar amount of customers, have always paid a consistent dividend, have a high annualized dividend growth rate and the possibility for appreciate is there.  This is my basic analysis when seeing if a stock fits my portfolio, given the need for a financial institution.  Thank you for reading, please feel free to leave a comment or message below!

-Lanny B.

Disclosure: I do not hold nor recommend anything.  This is actual data, analysis, however I base no investor recommendation.  However, I personally would add/start a position on this firm, however my direction is different from anyone else's.  Thank you for your understanding.

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