Bank of Montreal profit up; dividend growth on hold

*EPS C$1.06 vs C$0.87 a year earlier

*Tax recoveries, domestic unit help results

*Says dividend growth not appropriate now

*Stock ends up 2.4 pct after initial surge

(Adds CEO comments, preferred share issue, closing stock price)

By Lynne Olver

TORONTO (Reuters) - Quarterly profit rose 24 percent at Bank of Montreal (BMO.TO), helped by tax recoveries, higher profit at its Canadian retail banking unit and new accounting rules, but the bank said on Tuesday that dividend increases are on hold because of the murky economic outlook.

Analysts were split on whether the bank beat or missed profit expectations, but several said the numbers were sufficiently solid to relieve investors.

The market had worried about large writedowns after bigger competitors Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO) warned they would take quarterly charges for securities and trading losses.

BMO also announced a C$150 million ($122 million) preferred share issue on Tuesday afternoon, the third equity financing by a Canadian bank this week as financial institutions put greater emphasis on higher capital levels because of the financial crisis.

Keeping "elevated levels of capital" is appropriate in this environment, and growth in the bank's dividend is unlikely, BMO President and Chief Executive Bill Downe told a conference call.

The bank's C$2.80 per share annual dividend put it above the target payout ratio of 45 percent to 55 percent of earnings in the fourth quarter, so growth in the dividend is "not appropriate," Downe said.

But the current dividend level is suitable because of the bank's earning power, he added.

BMO's dividend yield has ballooned to 8 percent as the stock price has fallen.

Canada's fourth-largest bank said that net income was C$560 million, or C$1.06 a share, in the three months ended Oct. 31.

That was up from a profit of C$452 million, or 87 Canadian cents a share, a year earlier, when the bank swallowed charges for commodities and capital-markets losses.