Bank of Montreal (TSE:BMO) has announced that it will pay a dividend of CA$1.55 per share on the 26th of November. Based on this payment, the dividend yield for the company will be 5.0%, which is fairly typical for the industry.

Check out our latest analysis for Bank of Montreal

Bank of Montreal's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, Bank of Montreal has a long history of paying out a part of its earnings to shareholders. Based on Bank of Montreal's last earnings report, the payout ratio is at a decent 70%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next 3 years are set to see EPS grow by 47.5%. Analysts estimate the future payout ratio will be 53% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend. historic-dividend

Bank of Montreal Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from CA$3.04 total annually to CA$6.20. This means that it has been growing its distributions at 7.4% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Bank of Montreal May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Although it's important to note that Bank of Montreal's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 11 analysts are forecasting a turnaround in our free collection of analyst estimates here. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.