The Bank of Nova Scotia (BNS) increases dividend by 4% & has solid international operations.

Bank of Nova Scotia’s (NYSE:BNS) dividend was increased by a solid 4%.  Its overall yield is now 3.88%. The firm started paying a dividend in 1892.

The Bank of Nova Scotia is one of the largest banks based in Canada. It provides individual, corporate, and investment banking services. The large bank also offers mortgages, financial planning solutions, credit cards, insurance, and investment products. It operates nearly 1000 branches throughout Canada and also through international operations in Latin America and the Caribbean. The firm  was founded in 1832 and is based in Halifax, Canada.

Bank of Nova Scotia has maintained a solid three-year growth rate of dividends of 5.4 percent. Bank of Nova Scotia currently ranks 5th in dividend yield within the large cap financial, foreign money center banks category. The quarterly dividend for the April payment will be $0.58 versus the prior year rate of $0.56 per share. Bank of Nova Scotia is a member  of our Top 100 Dividend Stocks.  (see below).

top-100

The dividend will be paid at the new higher rate on April 26, 2017, to shareholders of record at close of business on April 4, 2017. The Bank of Nova Scotia is currently priced at $58.42. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend Canadian Dollar Quarterly Dividend U.S. Dollar
4/4/2017 0.76 0.579
12/29/2016 0.74 0.546
9/30/2016 0.74 0.563
6/30/2016 0.72 0.557
4/1/2016 0.72 0.554
12/31/2015 0.7 0.504
10/2/2015 0.7 0.528
7/6/2015 0.68 0.542
4/2/2015 0.68 0.539
1/2/2015 0.66 0.568
10/3/2014 0.66 0.592
6/27/2014 0.64 0.599
3/28/2014 0.64 0.58
1/3/2014 0.62 0.581
9/27/2013 0.5975 0.601
6/28/2013 0.5975 0.573
3/28/2013 0.5975 0.584
12/28/2012 0.5475 0.574
9/28/2012 0.5475 0.58
6/29/2012 0.5475 0.536
3/30/2012 0.5475 0.55
12/29/2011 0.5125 0.512
9/30/2011 0.5125 0.504
6/30/2011 0.5125 0.534
4/1/2011 0.5125 0.537
12/31/2010 0.49 0.49
10/1/2010 0.49 0.475
7/1/2010 0.49 0.467
4/1/2010 0.49 0.482


Analysis of Bank of Nova Scotia is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 3.88% 67
Dividend Growth (3-7 year avg) 5.8% 292
Forward P/E 11.63 47
S&P Financial Rating A+ 120
Beta 0.85 75
Total Score 601

Additional Information;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate BV 2016 P/BV Ratio 10 yr P/BV Low 10 yr P/BV High 5 yr low Yield % 5 yr max Yield %
3.88% 5.4% 6.25% 47.30 1.26 .92 2.45 3.46% 5.78%

Positives;

  • Bank of Nova Scotia’s dividend yield is above that of the S&P 500 Index.
  • Bank of Nova Scotia maintains an investment grade rating of A+.
  • Bank of Nova Scotia has maintained a three-year growth rate of dividends of 5.4 percent.
  • Bank of Nova Scotia has paid out a dividend consecutively for the past 125 years.
  • Bank of Nova Scotia is trading at the bottom of its ten-year average price/book (P/BV) ratio.
  • Bank of Nova Scotia maintains a beta of 0.85, below the average company.

Negatives;

  • Bank of Nova Scotia’s current dividend yield (3.88%) is below its five-year average historical dividend yield.

Latest Earnings & Overall Analysis:

Bank of Nova Scotia, also known as Scotiabank, issued its earnings data on February 28th. The company reported $1.19 earnings per share (EPS) for the quarter, topping the consensus estimate of $1.17 by $0.02. Net profits for Q1 2017 came in at just over $2 billion. A third of profits was from its strong international banking segment. The results were nearly 10 percent above last year’s results.  The Canadian firm also had $6.8 billion of revenue during the Q1, $500 million more than the $6.3 billion generated the previous year.  Net interest income finally came in above 3%, after several years of sub-3 percent postings.

Bank of Nova Scotia has more international assets than any other Canadian bank. It largest international operations are located in Latin America. In recent years, this regions has been a drag on profitability. Growth in Q1 was better than expected in the region for the firm. The largest penetration for the firm is in Chile, Colombia and Peru. These countries are highly dependent on commodity prices. Thus the recent uptick in global growth and commodity prices will assist Bank of Nova Scotia to meet their international financial targets. If the increase in prices holds for copper, silver, and zinc, this will be a large tailwind for the firm in 2017.

 

After two years of weak profits due to the oil collapse, the firm’s Canadian operations have stabilized.  Continued stability in oil prices have an outsized impact on the bank. Higher oil prices will allow for reduced loan defaults. Bad loans have dropped by over 3 percent in the past twelve months to under 10 percent.  Return on equity came in at over 14 percent for Q1, much higher than almost all U.S. banks.  For example Wells Fargo has a return on equity of 10.9 percent while J.P. Morgan maintains a return on equity just above 10 percent. Total expenses for the bank rose by just over 3 percent as cost reduction plans set in motion three years ago are starting to have an impact. Also of note is that within Canada, there are strong barriers of entry for new banks and consolidation.  Canadian banks are currently prohibited from acquiring one another. The Investment Canada Act also impacts banks ownership, as non-Canadian residents cannot hold more than 25 percent of shares of any Canadian banking company. The result has been a near monopoly within Canada. The largest six banks maintain a 90% market share within the Canadian banking sector.

Canadian banks like Bank of Nova Scotia offer some of the highest dividends for financial stocks on the globe. They are also very stable and increases are pretty consistent. Over the last seven years, the bank has raised its dividend by an average of 6%  Its current yield at 3.8% is well above U.S. banks as well. And growth prospects are positive due to the insulated Canadian market and strong Latin American exposure. It payout ratio has steadily climbed since 2012, but is still below the 50% threshold. This should allow the firm to keep the dividend increases in the 5% plus range for the next several years.

2016 2015 2014 2013 2012
Earnings per Share 5.77 5.67 5.66 5.15 5.22
Annual Dividend 2.88 2.72 2.56 2.39 2.19
Payout Ratio 49.91% 47.97% 45.23% 46.41% 41.95%

The bank if viewed favorably by analysts due to its strong return on equity, dividend growth, and international operations. Current Q2 estimates for earnings have risen to $1.20 per share, up two cents from a month ago. Yearly results for 2017 are expected to come in at about $4.95 per share. The firm thus trades at just under 12 times expected earnings.

Earnings per Share 2017 (projected) $4.95
Dividend $3.02
Payout Ratio 47.94%

Bank of Nova Scotia has been a Top 100 stock since the inception of our blog in 2014. Although not as highly ranked within the Top 100 as a year ago due to its yield falling from 5.75% to 3.88% (due to rapid price rise) , the stock still offers good value at $58.42 a share. Based on the firm’s international operations, high dividend yield, consistent dividend growth, low beta and solid financial credit rating, The Bank of Nova Scotia qualifies as one of our Top 100 Dividend Stocks.

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The Bank of Nova Scotia Dividend Yield Historical Chart (Click to enlarge)

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years.

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