Royal Bank of Scotland Group (NYSE:RBS) and Bank of Montreal (NYSE:BMO) are both large-cap finance companies, but which is the better business? We will contrast the two businesses based on the strength of their earnings, risk, dividends, institutional ownership, profitability, valuation and analyst recommendations.

Profitability

This table compares Royal Bank of Scotland Group and Bank of Montreal’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Royal Bank of Scotland Group 11.77% 7.04% 0.46%
Bank of Montreal 16.17% 14.75% 0.79%

Insider and Institutional Ownership

0.6% of Royal Bank of Scotland Group shares are owned by institutional investors. Comparatively, 43.1% of Bank of Montreal shares are owned by institutional investors. 1.0% of Bank of Montreal shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Earnings & Valuation

This table compares Royal Bank of Scotland Group and Bank of Montreal’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Royal Bank of Scotland Group $19.56 billion 2.08 $1.78 billion $0.65 10.45
Bank of Montreal $21.48 billion 2.47 $4.09 billion $6.24 13.28

Bank of Montreal has higher revenue and earnings than Royal Bank of Scotland Group. Royal Bank of Scotland Group is trading at a lower price-to-earnings ratio than Bank of Montreal, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of recent ratings and price targets for Royal Bank of Scotland Group and Bank of Montreal, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Royal Bank of Scotland Group 0 5 9 0 2.64
Bank of Montreal 0 0 5 0 3.00

Bank of Montreal has a consensus price target of $104.50, indicating a potential upside of 26.12%. Given Bank of Montreal’s stronger consensus rating and higher probable upside, analysts plainly believe Bank of Montreal is more favorable than Royal Bank of Scotland Group.

Dividends

Royal Bank of Scotland Group pays an annual dividend of $0.10 per share and has a dividend yield of 1.5%. Bank of Montreal pays an annual dividend of $2.95 per share and has a dividend yield of 3.6%. Royal Bank of Scotland Group pays out 15.4% of its earnings in the form of a dividend. Bank of Montreal pays out 47.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Volatility and Risk

Royal Bank of Scotland Group has a beta of 1.17, meaning that its share price is 17% more volatile than the S&P 500. Comparatively, Bank of Montreal has a beta of 1.11, meaning that its share price is 11% more volatile than the S&P 500.

Summary

Bank of Montreal beats Royal Bank of Scotland Group on 13 of the 16 factors compared between the two stocks.

About Royal Bank of Scotland Group

The Royal Bank of Scotland Group plc, together with its subsidiaries, provides banking and financial products and services to personal, commercial, corporate, and institutional customers worldwide. It operates through Personal & Business Banking, Commercial & Private Banking, RBS International, and NatWest Markets segments. The company offers savings and current accounts; secured personal loans, and business lending and asset-backed lending products; invoice financing and other financing products; and insurance products and credit cards. It also provides unitized fund, rate, portfolio management, payment, liquidity management, financial planning, and currency products. In addition, the company offers personal and business banking, commercial and private banking, wealth planning, investment management, risk management, and trading services to retail banking, mass affluent, small business, and high net worth customers. The Royal Bank of Scotland Group plc was founded in 1727 and is headquartered in Edinburgh, the United Kingdom.

About Bank of Montreal

Bank of Montreal provides diversified financial services primarily in North America. It operates through three groups: Personal and Commercial Banking, Wealth Management, and BMO Capital Markets. The company's personal banking products and services include checking and savings accounts, credit cards, mortgages, creditor insurance products, and financial and investment advice services; and commercial banking products and services comprise business deposit accounts, commercial credit cards, business loans and commercial mortgages, cash management solutions, foreign exchange, and specialized banking programs for small business and commercial banking customers. It also offers equity and debt underwriting, corporate lending and project financing, mergers and acquisitions advisory services, securitization, treasury management, risk management, debt and equity research, and institutional sales and trading services to corporate, institutional, and government clients. In addition, the company offers trade finance, investment management, online investing, trust and estate services, tax planning, and investment solutions to institutional investors, as well as industry-leading research, sales, and trading services. It operates approximately 1,500 branches in Canada and the United States, as well as 2 smart branches in Edmonton and Calgary, Alberta. The company was founded in 1817 and is headquartered in Montreal, Canada.

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