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BMO Financial Group Hikes Its Dividend. Good News?

Congratulations, shareholder! Did you hear the good news? From here on out, BMO Financial Group (NYSE:BMO) will be paying you a bit more money each quarter.

On Wednesday, May 27, BMO announced that its board of directors has declared an $0.82 dividend  on its common shares, up $0.02 from last quarter. This dividend will be payable on August 26, 2015, to shareholders of record on August 3, 2015.

According to , this bank has been raising its dividend steadily over the course of the past three years, and this week’s announced increase equates to a 2.5% hike in the dividend yield. If continued over the course of one full year, unchanged, BMO’s new dividend rate will amount to $3.28 per share.

BMO Financial Group attracted our attention because its top 4 hedge fund holders are all quant funds. Cliff Asness’ AQR Capital had the biggest position in BMO with a total investment of $81 million at the end of March. Renaissance Technologies, Hutchin Hill, and David Shaw’s quant hedge funds followed AQR. RenTech, which has been one of the most profitable hedge funds ever, actually doubled its BMO position during the first quarter.

Now, with BMO shares currently priced just north of $62 per share, you might ordinarily think that “$3.28 per share” would work out to a 5.2% dividend yield on the stock — but not so fast. Because BMO is a Canadian company, the $0.82 worth of dividends it will pay for this next quarter are Canadian cents . That’s only about $0.66 in American money. As a result, the bank’s new annual dividend is just US $2.63, which when weighed against the U.S. listing’s stock price results in an annual dividend yield of 4.2%.

What does it mean to you?
Knowing this, how does the stock stack up against alternative investments that you might make? Let’s put BMO in context for you, relative to the broader S&P 500 index of America’s 500 biggest stocks:

BMO Financial Group S&P 500
Dividend yield 4.2% 2.2%
Price-to-book ratio 1.4 2.6
Forward P/E ratio 8.7 18.5
Projected long-term earnings growth rate 10% 9.8%

S&P data courtesy of BMO data courtesy of Yahoo! Finance.

While investors would certainly prefer to be paid 5.2% in dividends for every share of BMO they own, rather than the 4.2% dividend yield they can now expect, the news isn’t all bad. Relative to the average S&P 500 offering, BMO costs less on both a P/E and a P/B basis, is growing somewhat faster than average, and pays a dividend yield nearly twice that of the S&P.

All things considered, the stock still looks pretty attractive.


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