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The Bank of Montreal – Added to the FFJ Portfolio on Weakness

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This article on The Bank of Montreal (BMO) is the fifth of a 5 part series on 'The Big 5' Schedule A Canadian banks.

At the time of my September 5th article, I viewed BMO shares as being overvalued. Shares have subsequently retraced ~11.3% and I now view them as being fairly valued.

Investors seeking an investment which provides an attractive, safe, and growing dividend may wish to consider BMO for their portfolio.

Summary

  • BMO recently reported FY2018 which reflected the benefit of a 21% YoY reduction in the provisions for credit losses as well as a low tax rate.
  • Canadian and US operations benefited from solid loan growth with strong Q4 performance evidenced in Personal and Commercial banking and accelerated growth in its U.S. segment.
  • Senior management is confident it can continue to deliver adjusted EPS growth within the 7% - 10% medium-term target range. I am erring on the side of caution and am projecting 7% adjusted EPS growth for FY2019.
  • In my September 5th article I viewed BMO as somewhat expensive. Based on the subsequent ~11.3% stock price pullback and my FY2019 earnings projections I now view BMO as fairly valued.

All figures are expressed in CDN $ unless otherwise noted.

Introduction

This fifth article in this series covering the Big 5 Schedule A Canadian banks touches upon The Bank of Montreal (TSX: BMO); BMO released its Q4 and FY2018 earnings on December 4.

Article 1 covered The Bank of Nova Scotia (TSX: BNS), article 2 covered The Royal Bank of Canada (TSX: RY), article 3 covered The Toronto-Dominion Bank (TSX: TD), and the article 4 covered The Canadian Imperial Bank of Commerce (TSX: CM).

Please refer to article 2 in which I cover Canada’s FI landscape.

I am satisfied with my level of exposure to BNS, RY, and TD. I have, however, been of the opinion for quite some time that I could further boost my exposure to CM and BMO.

I have been reluctant to acquire additional BMO and CM shares and in my September 5th article I indicated that because of various headwinds / uncertainties I would refrain from acquiring additional shares in any of the Big 5 other than through the automatic reinvestment of all dividends. In hindsight, this has worked out well since the share prices of the Big 5 have retraced; BMO’s share price has retraced ~11.3% subsequent to that article.

As luck would have it, investors have not been reacting kindly to the news surrounding U.S.-China trade and the falling 10-year yield has also spooked investors. This has resulted in share prices, in general, taking a hit on December 4th.

Quite frankly, I wish share prices would plunge further but now that CM’s and BMO’s share prices have retraced to levels I view as attractive from a long-term perspective, I have taken the opportunity to acquire 500 CM shares and 500 BMO shares today for the ‘Side Accounts’ within the FFJ Portfolio; these purchases will generate between CDN $4700 - $5000 in additional dividend income in 2019. As a result, the projected CDN $12,000 dividend income for 2019 which I expect to generate through the ‘Side’ accounts (see recent FFJ Portfolio update) will need to be revised upwards. My intent is to more closely analyze the projected dividend income for 2019 through the ‘Core’ and ‘Side’ accounts before I publish my December 2018 FFJ Portfolio update.

I have absolutely no idea whether share prices will rise or fall in the near term. I do, however, think that over the long-term share prices will rise. This is why I try to acquire shares when I think a company’s shares are fairly valued. Furthermore, I place more emphasis on generating a relatively safe and increasing stream of dividend income because selling shares to generate income during retirement is not a priority.

Please click here to read the complete version of this article.

Members of the FFJ community can access reports I generate on high quality companies which add long-term shareholder value. In an effort to help you determine whether my offering is of any value to you I am pleased to offer 30 days' free access to all sections of my site. No commitments. No obligations. That's 30 days from the time you register at absolutely no cost to you!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to charles@financialfreedomisajourney.com.

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long BMO, BNS, CM, RY, and TD.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.

By |December 4th, 2018|General Investing|Comments Off on The Bank of Montreal – Added to the FFJ Portfolio on Weakness

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