The Bank of Nova Scotia, or Scotiabank, (NYSE:BNS) is Canada's third largest bank, active in developing and emerging economies such as Latin America, the Caribbean and Asia. The company has its sights on retail banking acquisitions in Peru, Colombia, Mexico, and Chile. Further, it is flush with cash and has stated that it is looking to monetize on its 37% ownership in CI Financial Corp. (OTCPK:CIFAF). Today, the Bank of Nova Scotia operates in 4 unique diversified divisions which are:
1. Canadian Banking which provides a full suite of financial advice and banking solutions for personal and business customers. Scotiabank provides an alternative self-directed banking platform through the recently rebranded Tangerine Bank.
2. International Banking provides a full range of financial products, solutions and advice to retail and commercial customers in select regions outside of Canada such as the Caribbean and South America.
3. Global Wealth & Insurance which combines the Bank's wealth management and insurance operations in Canada and internationally, and Global Transaction Banking.
4. Global Banking & Markets which is the wholesale banking and capital markets arm.
I recently took an opening position in the Bank of Nova Scotia on the basis of 4 solid fundamental reasons, which are explained below. Bank of Nova Scotia represents a well balanced company with strong domestic and international business, profits and dividend payout which are ideal for any long-term investor.
1. Strong Earnings at C$1.66 Billion Quarterly Profit
Bank of Nova Scotia recently reported that second-quarter 2014 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 has stated 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. This will keep the share float unchanged. The company reported a net profit in the quarter of $1.66 (all figures in CDN dollar unless mentioned) billion compared with $1.58 billion a year earlier.
2. Modest but Growing Dividend
In parallel with its earnings announcement, the bank 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% annual return. Toronto-Dominion Bank (NYSE:TD) is currently yielding 3.44%, while Canadian Imperial Bank of Commerce (NYSE:CM) is yielding 4.18%.
Since the end of 2010, Scotiabank has raised its dividend six times.
3. Strong International and Growing International Presence:
As of 2013, Scotiabank services more than 21 million customers and has over $783 billion in assets. The bank employs more than 83,000 employees all over the globe including: Europe, Asia, Latin America and the Caribbean. Scotiabank is Canada's most international bank with 3,322 branches and offices in over 55 countries.
In South America, the bank has been expanded in countries such as Peru where it has had a presence since 1997. In 1997, Scotiabank acquired a 35 percent stake in Banco Sudamericano and has been executing on targeted expansion since then. Strategic transactions include the purchase of Banco Sudamerico, Banco Wiese Sudameris, AFP Profutur, and Financiera CrediScotia business. Financiera CrediScotia provides unique financing options, including micro-financing for consumer lending.
More recently, Scotiabank announced the 51% acquisition of Cencosud SA's financial service division in a transaction valued at $279 million which would place Scotiabank as the third largest credit card provider in Chile. The acquisition will also give the bank a 15-year partnership deal that would allow them to administer the credit card business and expand its product offerings. Further, Scotiabank has also agreed to fund 100% of the company's loan assets.
Cencosud is a major retailer in Latin America with 2.5 million credit cards in circulation with an estimated balance of $1.2 billion in outstanding credit card debt.
Scotiabank has separated itself from other banks by continuing its Latin American and Asian expansion. TD Bank and the Bank Of Montreal have been fighting for market share in the U.S. retail market.
4. Stock Upside Coupled with Dividends Offer Over 10% Upside
According to sources, the consensus forecast amongst 22 polled investment analysts covering Scotiabank advises that the bank will outperform the stock market. Further, the same source reports that the analysts offering 12-month price targets for Scotiabank have a median target of $72.50/share. The highest projection on the stock is placed at $80.00/share, which represents a potential of an additional 10% upside on the stock coupled with a 3.6% dividend payment, assuming the bank does not announce additional dividend hikes.
Disclosure: The author is long TD, BNS, CM. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.