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Bank of Montreal (TSE:BMO) will pay a dividend of CA$1.06 on the 26th of November. Based on this payment, the dividend yield will be 3.3%, which is fairly typical for the industry.
Bank of Montreal's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Bank of Montreal was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share is forecast to rise by 13.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.
Bank of Montreal Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the dividend has gone from CA$2.80 to CA$4.24. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Bank of Montreal Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Bank of Montreal has grown earnings per share at 9.8% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Bank of Montreal's prospects of growing its dividend payments in the future.
Our Thoughts On Bank of Montreal's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 Bank of Montreal analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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.
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