Bank of Montreal 2010 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Total Shareholder Return
Five-year
For the year ended October 31 2010 2009 2008 2007 2006 CAGR (1)
Closing market price per common share ($) 60.23 50.06 43.02 63.00 69.45 0.8
Dividends paid ($ per share) 2.80 2.80 2.80 2.63 2.13 9.2
Dividends paid (%) (2) 5.6 6.5 4.4 3.8 3.7
Increase (decrease) in share price (%) 20.3 16.4 (31.7) (9.3) 20.1
Total annual shareholder return (%) 26.4 25.1 (27.9) (5.8) 24.1
Total annual shareholder return assumes reinvestment of quarterly dividends and therefore does not equal the sum of dividend and share price returns in the table.
(1) Compound annual growth rate (CAGR) expressed as a percentage.
(2) As a percentage of the closing market price in the prior year.
Value Measures
Total Shareholder Return
The five-year average annual TSR is a key measure of shareholder
value and is the most important of our financial performance and
condition measures, since it assesses our success in achieving our guiding
principle of maximizing return to shareholders. Over the past five years,
shareholders have earned an average annual TSR of 5.9% on their
investment in BMO common shares. The average was suppressed by
the low valuations in the difficult equity market conditions of 2008,
as annual returns have exceeded 20% in three of the past five years.
The five-year average annual return was lower than the 7.0% average
annual return for the S&P/TSX Composite Total Return Index, but
higher than the 5.0% return for the S&P/TSX Financial Services Total
Return Index and the 1.7% return for the S&P 500 Total Return Index.
The one-year return was strong, at 26.4%, and was higher than the
comparable indices.
The table below summarizes dividends paid on BMO common
shares over the past five years and the movements in BMO’s share
price. An investment of $1,000 in Bank of Montreal common shares
made at the beginning of fiscal 2006 would have been worth $1,333 at
October 31, 2010, assuming reinvestment of dividends, for a total return
of 33.3%. We maintained our dividend payments at $0.70 per common
share in each quarter of 2010, consistent with 2009. Dividends paid
over five-year and ten-year periods have increased at average annual
compound rates of 9.2% and 11.0%, respectively.
The average annual TSR of 5.9% for the most recent five-year
period improved from the 1.8% average annual return for the five years
ended October 31, 2009. The averages are affected by each one-year
TSR included in the calculations.
The five-year average annual total shareholder return (TSR)
represents the average annual total return earned on an
investment in BMO common shares made at the beginning
of a five-year period. The return includes the change in share
price and assumes that dividends received were reinvested
in additional common shares. The one-year TSR also assumes
that dividends were reinvested in shares.
One-Year Total
Shareholder Return (%)
*Total return
BMO
common
shares*
S&P/TSX
Financial
Services
Index*
S&P/TSX
Composite
Index*
S&P 500
Index*
7.0
5.0 16.5 14.7
19.5
26.4
5.9
1.7
Five-Year Average Annual
Total Shareholder Return (%)
*Total return
BMO
common
shares*
S&P/TSX
Financial
Services
Index*
S&P/TSX
Composite
Index*
S&P 500
Index*
Average annual returns have
been affected by the difficult
equity market conditions of 2008.
Equity markets were strong
in 2010 and BMO outperformed
the comparable indices.
Highlights
• Total shareholder return (TSR) – Our one-year TSR in 2010 was
a strong 26.4%, well above the comparable indices. Low equity
valuations in 2008 reduced the average annual return over the
past five years to 5.9%.
• Earnings per share (EPS) growth – EPS grew 54% from 2009 as
net income rose significantly. Market conditions improved, resulting
in strong revenue growth and lower provisions for credit losses.
There was a modest increase in expenses and a higher effective
income tax rate. The average number of common shares
outstanding increased, primarily due to our 2010 dividend
reinvestment program.
•
Net income was up 57%, rising by more than $1 billion to $2.8 bil lion.
P&C Canada and Private Client Group recorded strong net income,
with results up appreciably from 2009. Corporate Services also
recorded significantly improved results, with higher revenues and
lower provisions for credit losses.
• Return on equity (ROE) was 14.9% in 2010, up from 9.9% in 2009
due to increased net income. BMO has achieved an ROE of 13%
or better in 20 of the past 21 years, one of only two banks in our
North American peer group to have done so.
• We maintained our dividend payments at $2.80 per common
share in 2010, in light of the financial environment and uncer-
tainty regarding pending changes in the rules governing capital
adequacy. Dividends paid per common share over five-year
and ten-year periods have increased at average annual compound
rates of 9.2% and 11.0%, respectively.
32 BMO Financial Group 193rd Annual Report 2010