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Bank of Montreal's (TSE:BMO) Upcoming Dividend Will Be Larger Than Last Year's

Bank of Montreal's (TSE:BMO) dividend will be increasing from last year's payment of the same period to CA$1.51 on 27th of February. This makes the dividend yield about the same as the industry average at 5.3%.

Check out our latest analysis for Bank of Montreal

Bank of Montreal's Dividend Forecasted To Be Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Bank of Montreal has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Bank of Montreal's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that Bank of Montreal's dividend at its current rate may no longer be sustainable for longer.

Looking forward, EPS is forecast to rise by 137.1% over the next 3 years. Analyst estimates also show the future payout ratio being 51% in the same 3 years which brings it into quite a comfortable range.

historic-dividend
historic-dividend

Bank of Montreal Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was CA$2.96, compared to the most recent full-year payment of CA$6.04. This means that it has been growing its distributions at 7.4% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Bank of Montreal's earnings per share has shrunk at approximately 7.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Bank of Montreal's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Bank of Montreal that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.