Here's a question that attracts strong answers: Is Bank of Montreal's dividend safe amid ongoing volatility in the financial sector? If you listen to what the market is saying – and the market has been pretty good at calling dividend cuts lately – the high dividend yield is reason enough to be concerned. That yield peaked at about 9.7 per cent in mid-December, after the shares fell below $29, a sign that management may be revving the chainsaw.
However, on Tuesday, American International Group announced that it was selling its Canadian life insurance business to Bank of Montreal for about $375-million. For Mark McQueen, president and chief executive of Wellington Financial, that can only mean one thing: “This is not the action of an institution that is worried about free cash flow, or their ability to continue to pay the $2.80 dividend.”
BMO shares rose 33 cents, to $33.14 in Toronto on Tuesday. That brings the dividend yield down to 8.4 per cent -- down considerably from the December peak but still by far the highest yielding stock among Canada's big banks and an indication that the market does not share Mr. McQueen's confidence.
By comparison, Canadian Imperial Bank of Commerce has the second highest yield among the banks, of 6.9 per cent. Bank of Nova Scotia's yield is 6.2 per cent and Royal Bank of Canada's is 5.6 per cent. Toronto-Dominion Bank's yield is the lowest in the group, at 5.5 per cent.
