The big Canadian banks have not had a good go of it lately.
Concerns about Canadian debt loads and the quality of these banks' loan books has weighed on share prices, resulting in yields which are substantially higher than typical in recent years. I'm going to focus on the Bank of Montreal (TSX:BMO)(NYSE:BMO) in this article, and highlight some key areas investors should focus on in this low interest rate environment.
Anything with yield I believe will outperform companies not offering dividends, all else being equal, as we continue on in a bond environment which is seeing record amounts of negative yielding treasury paper being issued.
Institutional investors will be pushed to generate low risk yield for their clientele, and in that regard, the Canadian banks should offer a relatively safe place to park some cash for 10 years (when compared to those 10-year government bonds I mentioned earlier).
With respect to BMO's risk profile, the company is well diversified around the globe, so I don't believe the overemphasis on Canadian retail mortgage exposure will materialize over the medium or long term. The company is trading below 10-times earnings and carries a nice 4.5% yield, which should compensate a long term investor for any short-term pain markets may or may not experience in the near term.
For a buy and hold investor looking for yield, BMO is a great place to start, considering the firm's strong 13.5% return on equity and modest earnings growth on a year over year basis.
Invest wisely, my friends.
