Bank of Montreal (TSX: BMO) (NYSE: BMO) stock is the fourth largest in terms of market capitalization. Thus, he has more room to grow. It is a diversified North American bank that provides essential financial services. In fiscal 2020, 58% of its adjusted net income came from Canada and 31% from the United States. Its four lines of business are Personal and Commercial Banking in Canada (36% of Adjusted Net Income), Personal and Commercial Banking in the United States (24%), Wealth Management (20%) and Markets. capital (20%).

Why BMO shares are up + 30% year-to-date

Since the start of the year, BMO shares have performed fairly well, climbing more than 30%, beating three other major Canadian banks. Of course, this kind of price appreciation is not normal for the stocks of major Canadian banks. BMO stock is not the only one in this case, however. Equities of counterpart banks CIBC and National bank of Canada also appreciated over 30% during this period.

Data by YCharts.

The reason for the unusually strong price appreciation is that Canadian banks are experiencing a strong rebound from the impact of the pandemic. More specifically, in fiscal 2020, during the pandemic, the adjusted net income of the Bank of Montreal increased steadily by 3% to reach nearly $ 23.5 billion.

However, to be cautious of the potential for increased credit losses during a tough time for the economy, the bank tripled its allowance for credit losses, to nearly $ 3 billion year-over-year. 2019. The allowance for credit losses, in turn, weighed on the company’s bottom line. Specifically, adjusted earnings per share (EPS) for fiscal 2020 ended up being down 18% compared to fiscal 2019.

During the pandemic market crash, BMO shares fell to $ 60 per share (which equates to a normalized price-to-earnings ratio of around 6.4). Even at the end of calendar year 2020, the bank stock still had not fully recovered.

A massive jump in earnings expected this fiscal year, due to a normalization of the allowance for credit losses, quantitative easing, high inflation and a growing economy, contributes to the abnormal rise in value banks.

The frozen dividend

While BMO’s share price appreciation has been exceptional this year, you’ll notice that its dividend has been frozen for eight consecutive quarters, or roughly two years. The dividend freeze is happening across the board with its peers as well, as regulators remain cautious in an economy that still has uncertainties around the global pandemic.

The price appreciation associated with the dividend freeze has led to what some investors see as an unattractive return. Due to the recent strong appreciation in prices and the stable dividend, bank stocks could potentially move sideways for some time.

BMO Dividend Yield Data from YCharts.

That said, there will likely be increased investor interest in bank stocks when they announce a dividend hike after a long wait.

What should investors in BMO stocks do today?

The stocks of major Canadian banks, including BMO, are some of the best dividend-paying stocks to hold for passive income. BMO, in particular, boasted in its 2020 annual report that it has “the oldest dividend payout record of any company in Canada, at 192.” BMO shares are today a “reserve” for investors who already own them and a “buy” potential for investors who do not have sufficient bank exposure in their equity portfolios.

Remember to normalize your expectations in the future. The bank is likely to increase its EPS by around 5-7% per year in the long run. So don’t expect a big rally in bank stocks unless another substantial correction occurs.

The Motley Fool recommends the BANK OF NOVA SCOTIA. Foolish contributor Kay ng owns shares of Royal Bank and TD.