- A review of Bank of Nova Scotia's recent earnings.
- Acquisition of ING, Credito Familiar in Mexico, and others could play well in the long run.
- Buy Bank of Nova Scotia on the sale of CI Financial and a strong pipeline of acquisitions.
Bank of Nova Scotia (NYSE:BNS) recently reported that second-quarter profit rose 14%, beating estimates and the bank's CEO gave clear indication that the bank is in a position to rapidly expand on its foreign business activities. The company is in growth mode and said that it will deploy capital to acquire and grow business rather than buy back shares, although it intends to acquire 1% of the float to offset any options that will be exercised which will keep the share float unchanged. The company reported a net profit in the quarter of C$1.66 billion compared with C$1.58 billion a year earlier. The stock has since broken all time highs on the heels of the encouraging results.
Sale of CI Financial and Acquisition in the Pipeline
Bank of Nova Scotia, Canada's third largest bank, is active in developing and emerging economies such as Latin America, Caribbean and Asia has its sights on retail banking acquisitions in Peru, Colombia, Mexico, and Chile. The company is flush with cash and has stated that it is looking to monetize on its 37% ownership in CI Financial Corp (OTCPK:CIFAF) which translates into $3.8 billion. Since the beginning of 2013, CI's share price has rallied more than 44% while the company has grown its assets under management to $97 billion.
In Q1 2013, Bank of Nova Scotia acquired ING Direct, which was recently rebranded as Tangerine. Heavy brand marketing is taking place across Canada, especially in the Greater Toronto Area. Although ING Canada is being rebranded to Tangerine not much more will change keeping the norms and core values the same. CEO of ING Direct, Peter Aceto recently stated:
I want to be clear, what we are sharing with you today, is a new name and a new logo. That's it. Nothing has changed about our core values and what we stand for. We're keeping everything you love about ING DIRECT. Great interest rates. No fees, and award-winning customer service.
Bank of Nova Scotia also acquired Credito Familiar in Mexico. Credito's focus is on the consumer and microfinance sector and has 243 branches. Outside of banking, in November 2011, it announced it would spend an additional $2.3 billion to acquire the remaining shares in DundeeWealth, which runs the Dynamic family of mutual funds in Canada. In addition, Bank of Nova Scotia completed the 51% acquisition of Colfondos AFP. Colfondos is Colombia's fourth-largest pension fund company.
The company's CEO was asked on a conference call if he intends to make any additional purchases. Mr. Porter offered a response that did not dispel the speculation, adding that:
We do have a pipeline of acquisitions that we are looking at periodically, provided they fit with Scotiabank's strategy.
Since he took over as CEO in November, Mr. Porter has made an attempt to outline where he wants to focus Scotiabank's foreign operations. His primary area of focus is on expanding their presence in Colombia, Peru, Chile and Mexico, where Scotiabank has already bought stakes in personal and commercial banks along with wealth management companies.
Handsome and Steady Dividend
Last week, Bank of Nova Scotia announced a dividend on its outstanding common shares of $0.64 per share for the quarter ending July 31, 2014, or $2.56 on an annual basis. This is in comparison to $2.39 in 2013 representing a healthy 5% dividend increase year over year.
At current stock trading levels the yield is still attractive providing around 3.6% return on an annual basis. Toronto-Dominion Bank (NYSE:TD) is currently yielding 3.44% while Canadian Imperial Bank of Commerce (NYSE:CM) is yielding 4.18%.
In summary, Bank of Nova Scotia presents a well positioned Canadian bank that is going to grow its business through strategic global acquisitions in emerging markets. This is excellent for long term investors as the Canadian banks face an increasingly competitive domestic banking market coupled with a slowing housing market. Further, the company pays an attractive dividend which yields a healthy 3.72%. On the heels of these exciting events it is clear that the Bank of Nova Scotia is a strong pick for any investor who is looking for an incoming paying investment which is growing its core businesses both at home and abroad.
Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.