Bank of Montreal (TSE:BMO) shareholders will receive a larger dividend than last year

administration Bank of Montreal (TSE:BMO) announced on August 26th that it will increase its dividend to CA$1.39. That's an annual payout of 3.7% of the current share price, which is about average for the industry.

Check out our latest analysis for Bank of Montreal

Bank of Montreal earnings easily cover the split

If the payouts aren't consistent, that doesn't mean the dividend yield is too high. Based on the last payment, Bank of Montreal earned enough to cover the dividend, but free cash flow was not positive. Since the company isn't bringing in any cash, it's going to be difficult to pay shareholders at some point.

EPS will decline by 19.0% over the next 12 months. If the dividend continues the way it has recently, we believe the payout ratio could be 38%, which is good for the company to continue going forward.

Bank of Montreal has a good track record

Even with its long history of paying dividends, the company's distribution has been fairly consistent. Since 2012, the dividend has increased from C$2.80 to C$5.56. This means that it has increased its distribution volume by 7.1% per year during this time. Dividends have grown at a reasonable rate over this period and without significant payout cuts over time, which we think is an attractive combination as it provides a nice boost to shareholder returns.

The dividend looks set to grow

Investors who have owned the company's stock over the past few years will be happy with the dividend income they have received. It's encouraging to see that Bank of Montreal has grown its earnings per share by 17% per year over the past five years. The EPS growth is positive for dividends, as is the low payout ratio the company is currently reporting.

Briefly

Overall, it's probably not a great income stock, even though the dividend is currently rising. With cash flows lacking, it's hard to see how the company can sustain its dividend payments. This company is not at the top of the income spectrum that the stock provides.

Companies that follow a consistent dividend policy may attract more investor interest than those that suffer from a conflicting approach. However, there are other things for investors to consider when analyzing stock performance. The Bank of Montreal exists for this purpose 2 warning signs (and 1 is slightly related) we think you should know about it. Looking for high yield dividend ideas? Try our collecting strong dividend payers.

Got feedback on this article? Worried about content? Contact directly with us. Alternatively, email editorial-team (at) simplewallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to provide financial advice. This is not an offer to buy or sell shares and does not take into account your objectives or financial situation. We aim to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not be affected by price-sensitive company recent announcements or quality material. Simply Wall St has no position in these stocks.