BMO among top financial stocks to buy

Canadian bank stocks reported better-than-expected core earnings in their second quarter, and that includes Bank of Montreal. The bank reported adjusted earnings of $1.71 a share, up five per cent from the same quarter last year. Fourth in market cap among the Big 5 Canadian bank stocks, BMO is a buy for both growth and income.

Bank of Montreal’s (TSX─BMO) results demonstrate the benefits of the bank’s business mix. That’s because adjusted earnings at the Canadian personal and commercial, or P&C, segment rose just one per cent. But stronger growth in the U.S. P&C and wealth management segments helped pull up the bank’s overall results.

BMO among top Canadian bank stocks to buy

BMO Financial Group is a diversified full financial services provider. The bank provides a broad 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: P&C banking, wealth management and BMO Capital Markets.

Despite the positive second-quarter performance, the bank’s year-to-date results were flat. For the six months ended April 30, 2015, BMO made $2.2 billion (adjusted), or $3.24 a share, compared with $2.2 billion, or $3.24 a share, in the same period of 2014. Growth in Wealth Management and the P&C businesses was offset by declines in BMO Capital Markets and Corporate Services. Adjusted net income rose 7.4 per cent to $1.4 billion at the P&C segment, and 18.8 per cent to $451 million at Wealth Management.

Though overall results have been flat so far this year, BMO announced a third-quarter dividend of $0.82 a common share, up two per cent from the second quarter, and five per cent year over year.

Despite the lackluster first half, we think BMO will deliver modest earnings per share growth in fiscal 2015. This, of course, partly assumes the Canadian economy, which got off to a weak start early this year due to reduced energy prices, will enjoy an upturn in growth for the rest of the year as it benefits from a weaker currency, stronger U.S. demand and rising energy prices. But the bank should also benefit from its U.S. P&C business due to a strengthening U.S. economy.

BMO’s stock trades at just 11.0 times its projected fiscal 2015 earnings of $6.73 a share. The current annual dividend of $3.28 a share yields 4.4 per cent. Bank of Montreal is a buy for growth and income. 


Money Reporter, MPL Communications Inc.
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