Getting tired of seeing Bank of Montreal poked in the eye? So is Mark McQueen, president and chief executive officer of Wellington Financial, a fine blogger and, okay, a BMO shareholder.
Yes, he acknowledges that bad news is swirling around BMO’s beaten up shares – including a recent view from an analyst at Genuity Capital Markets that BMO will have to tap the equity market for an infusion of $1-billion to $1.5-billion and may have to cut its dividend as well.
But Mr. McQueen makes the point that the worst news may be over at the troubled bank and that lots of the current selling may have to do with portfolio managers, reacting to analyst downgrades, rotating out of BMO and into other Canadian banks.
As for the dividend yield – now 6.5 per cent and rising – the dividend would have to be sliced in half for the yield to fall to the level of Bank of Nova Scotia's yield. And for the yield to fall below 4 per cent, BMO would have to issue “several billion dollars” of new equity. In other words, if the dividend isn’t safe, it’s not exactly unattractive either.
“As for the stock, BMO is down 41 per cent from the one-year high,” Mr. McQueen said in his blog. “But they’re not alone. Goldman Sachs is down 36 per cent over the same time frame. Not bad company to be in the penalty box with. And if these analysts are right, BMO’s going to be up almost $10 a share (20 per cent) by this time next year, plus a $2.75 dividend.”
