Solid Canadian Bank Yielding North Of 4%

Nov.27.11 | About: The Bank (BNS)

I recently came across a $50B bank north of the border that I had never heard of but which appears to be in good shape and offers a generous yield and low valuation.

Bank of Nova Scotia (NYSE:BNS) – “The Bank of Nova Scotia, together with its subsidiaries, offers various personal, commercial, corporate, and investment banking services in Canada and internationally. It has four segments: Canadian Banking, International Banking, Global Wealth Management, and Scotia Capital. The Canadian Banking segment includes retail and small business banking, which provides mortgages, loans, credit cards, investments, and day-to-day banking products to individuals and small businesses; and commercial banking business that delivers a product suite to medium and large businesses, including banking, cash management, lending, and leasing”. (Business description from Yahoo Finance)

6 reasons BNS is a good buy at $46:

1. Bank of Nova Scotia has good technical support at just under current price levels (See Chart, click to enlarge).

Click to enlarge

2. Another floor under the stock is its 4.2% dividend yield. It has raised its dividend an average of 4% a year over the past five years, in contrast to U.S. banks that have been forced to cut dividends over the same time period.

3. Canada has a stronger economy and avoided the mortgage mess of the United States which has left its banking sector in much better shape.

4. BNS is showing rapid earnings growth. It earned $3.97 a share in FY2010 and is projected to earn $4.59 this year and $4.89 in FY2012.

5. The bank has a forward PE of just 9.4 which is an over 20% discount to its five year average.

6. It is currently under analysts’ price targets. The median analysts’ price target on BNS is $63 and Credit Suisse has a price target of $62 on the Bank of Nova Scotia.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BNS over the next 72 hours.