Bank of Montreal (BMO) is a Top Dividend Stock Right Now: Should You Buy?

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

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 -11.33% since the start of the year. The bank is paying out a dividend of $1.06 per share at the moment, with a dividend yield of 4.45% compared to the Banks - Foreign industry's yield of 4.04% and the S&P 500's yield of 1.72%.

Looking at dividend growth, the company's current annualized dividend of $4.25 is up 25.9% from last year. Bank of Montreal has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.93%. 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. Bank of Montreal's current payout ratio is 38%, meaning it paid out 38% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, BMO expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $10.43 per share, with earnings expected to increase 1.16% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BMO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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