This is Why Bank of Montreal (BMO) is a Great Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Bank of Montreal in Focus

Bank of Montreal (BMO) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 14.48% since the start of the year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 4.21%. In comparison, the Banks - Foreign industry's yield is 3.45%, while the S&P 500's yield is 1.86%.

Looking at dividend growth, the company's current annualized dividend of $3.15 is up 7.7% from last year. Over the last 5 years, Bank of Montreal has increased its dividend 4 times on a year-over-year basis for an average annual increase of 2.82%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Bank of Montreal's payout ratio is 42%, which means it paid out 42% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, BMO expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.12 per share, representing a year-over-year earnings growth rate of 1.86%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that BMO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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