Recently I had a few minutes to gather all the necessary information to analyze what could be my next move: ScotiaBank (NYSE:BNS).
I guess you know of my love for Canadian banks by now. The Big 6 (Royal Bank (NYSE:RY), TD Bank (NYSE:TD), ScotiaBank, CIBC (NYSE:CM), Bank of Montreal (NYSE:BMO) and National Bank (OTCPK:NTIOF)) are solid companies evolving in a sector that is both solid and is heavily protected by the government: Canadian financial institutions. To be honest, I think that that if you buy any Canadian bank, you are making a good deal. In this dividend stock analysis, I’ll tell you why BNS is my pick.
The Company Stock Description
ScotiaBank is the third largest bank in Canada in terms of assets. One thing I really like about it is that while it is pretty strong in Canada, it is also the most international of Canadian banks. It has over 70,000 employees working in more than 50 countries. Besides its Canadian activities, it is mainly active in South America and Asia. BNS offers everything a bank can offer through its divisions (savings and loans, investing services, trust, commercial banking, wealth management, international financial services, etc.).
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Company Ratios and Financial Info
Dividend Metrics (as of Jan 2011):
Current Dividend Yield: 3.50%
5-year Dividend Growth: 7.58%
1-year Dividend Growth : 0%
Company Metrics :
Sales Growth: 5.67%
Earning Growths: 33.04%
P/E Ratio: 14.41
Margin Growth: N/A
Payout Ratio: 50.1%
Return on Equity: 18.06%
Debt to Capital Ratio: 1.20
Trading Volume: 3,232,840
Trend (technical analysis): Trading over moving average
Upcoming Opportunities and Dangers
BNS is clearly capitalizing on one of its main advantages: It grew stronger from the 2008 credit crunch. All Canadian banks kept posting profits and increased their capital. This is how ScotiaBank recently bought DundeeWealth (a Canadian wealth management company) in order to increase its presence in the wealth management sub-sector. This allowed BNS to jump from 11th to 5th place in terms of assets under management in Canada.
Another great point is that financial analysts expect BNS to raise its dividend in 2011 (going back to a "raise every two quarters" scenario). This is always good news for dividend investors.
On the other hand, while BNS takes care of its Achilles’ heel in wealth management, it will certainly not be the leader in terms of loans in Canada. In fact, its growth will definitely not come from this sector, which is led by other Canadian banks.
While I like the fact that BNS is diversified among many South American and Asian countries, this also exposes it to more economic fluctuations in those countries. A double-dip recession in some countries will affect it badly.
Since I am already holding the smallest and most Canadian concentrated bank in my portfolio (National Bank), I think that BNS will be a great addition since it is completely the opposite. I certainly don’t expect the stock to rise like there is no tomorrow (the chance for that happened in 2009; now it’s too late). However, I think BNS will be a solid dividend payer that will raise its dividend from time to time.
I should be getting an additional $5,000 in my brokerage account by next week. BNS will definitely be a buy at that time. What do you think?