Bank of Montreal (TSX:BMO)(NYSE:BMO) recently released its quarterly earnings which saw its bottom line increase by 20% from a year ago. Although it felt short of analyst expectations, it was still a great showing for the big bank stock.
BMO was able to generate growth in its personal and commercial banking segments in both Canada and the U.S.
The company also announced that it was going to be raising its quarterly dividend payments from $1.00 per share to $1.03.
Even if the bank had not had a strong quarter, it’s likely it would have raised its payouts anyway given that it has a strong track record for doing so and it’s become a bit of a pattern investors have come to expect. If we look at the past five years, it’s easy to see that BMO doesn’t go more than two quarters without increasing its payouts.
And based on that schedule, it was right on track with announcing another dividend hike this quarter.
If the pattern holds, then BMO will likely pay the new dividend for one more quarter before increasing it again. And so while the dividend increase was a modest 3%, BMO has averaged a much higher annual growth rate over the years.
Five years ago, BMO was paying its shareholders a dividend of 78 cents, meaning that its payouts have grown by 32% since then. That averages out to a compounded annual growth rate of 5.7%.
While it’s no guarantee to continue, if it does, it could provide investors with a lot of dividend income in the years to come and simply holding onto the dividend will result in a higher effective yield.
