Bank of Montreal’s third-quarter adjusted earnings per share were seven per cent ahead of analysts’ eps expectations. This blue chip Canadian bank stock is a buy for income and some growth.
Bank of Montreal (TSX—BMO) has reported that its adjusted earnings per share for the third quarter ended July 31 was $1.94, well above analysts’ consensus forecast of $1.82. It was also 4.3 per cent above the $1.86 that BMO earned in last year’s third quarter. The bank had good performances across most of its operating groups, particularly in personal and commercial banking, and BMO Capital Markets. Personal and commercial banking benefitted from organic growth and its BMO Transportation Finance business, which was acquired from General Electric Capital Corp. in September 2015.
BMO Financial Group, the fourth-largest bank in Canada by assets, is a highly-diversified full financial services provider based in North America. With total assets of $692 billion, the bank provides a wide range of retail banking, wealth management and investment banking products and services to more than 12 million customers and conducts business through three operating groups: personal and commercial banking, wealth management and BMO Capital Markets. In addition to its Canadian operations, the bank operates in the U.S. through BMO Harris Bank, a major U.S. Midwest personal and commercial bank, and other businesses.
Taking into account the bank’s third-quarter results with those of prior quarters, BMO has made solid progress this year. For the nine months ended July 31, 2016, BMO made $3.6 billion (adjusted), or $5.42 a share, compared with $3.4 billion, or $5.10 a share, in the same period of 2016.
BMO fourth-largest of big 5 Canadian bank stocks
Adjusted net income at Canadian personal and commercial banking rose 4.5 per cent to $1.6 billion, thanks to higher balances across most products and increased non-interest revenue. Net income at U.S. personal and commercial banking rose 26.1 per cent (17.2 per cent in U.S. dollars) to $628 million. Revenues at this segment benefitted from BMO Transportation Finance, higher loan and deposit volumes and increased deposit spreads.
Income at wealth management, however, declined 18.0 per cent to $561 million, down primarily because of a $79-million after-tax investment write-down.
Income at BMO Capital Markets rose 10.6 per cent to $873 million. Revenues at this segment benefitted from a strong U.S. dollar and increases in trading revenues, corporate banking and securities commission revenue.
Overall growth in adjusted earnings was more than enough to support a 2.4-per-cent increase in BMO’s quarterly dividend to $0.86 a share in May.
We expect average annual earnings growth at BMO’s Canadian personal and commercial banking segment to remain in the mid-single digit range these next couple of years. There’s reason for caution, however, due to slow economic growth and new mortgage rules.
At the U.S. personal and commercial segment, however, low double-digit growth is possible. Here BMO should continue to benefit from its new transportation finance business.
BMO’s shares trade at 11.6 times the bank’s likely fiscal 2016 earnings of $7.26 a share. The current annual dividend of $3.44 a share yields 4.1 per cent.
BMO is a blue chip financial stock to buy for income and some growth.
Money Reporter, MPL Communications Inc.
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Money Reporter •11/8/16 •