Canada survived the latest recession in better shape than the United States and Europe, largely because Canadian banks were more prudent than their reckless counterparts in other countries. As major economic indicators in North America continue their upward trajectory in 2015, this vast country stands on the cusp of exceptional growth.
That said, Canada often doesn’t get the investor attention that it deserves.
One bank stock that certainly deserves your attention is Bank of Nova Scotia (BNS), known as Scotiabank. In 2014, Bank of Nova Scotia led Canada-based investment banks in the value of equity issues advised on, fueled by the surge in initial pubic offerings last year.
According to a Thomson Reuters equity report released on Jan. 8, equity issues worth $31.6 billion were completed in Canada last year, up from $28.9 billion in 2013. BNS advised on the largest amount at $4.65 billion.
With a market cap of $63.6 billion, Scotiabank is one of the best-run banks in the world and is positioned to thrive in 2015. Based in Toronto, Scotiabank is well diversified in both operations and geography and it’s expanding through organic growth and acquisitions. BNS is made up of four operating segments: Canadian banking (33% of earnings), international banking (25%), global wealth management (19%), and global banking and markets (23%).
The company also is pushing into Latin America and Asia via acquisitions.
Canadian banks are an under-appreciated investment overall, even though they’re among the world’s strongest and safest. They’re also protected well: Ottawa’s regulators restrict foreign-based banks from domestic competition. At the same time, Canadian banks must contend with tougher government oversight than do banks in the U.S.
To be sure, these tight parameters restrict Canadian banks’ room for growth, but they also curb the potentially disastrous consequences of excess, as experienced in the U.S. leading up to the Great Recession and financial meltdown.
In a world beset by turmoil, Canada’s political stability combined with historic strength in banking make the country a solid long-term growth investment. Moreover, as the country’s American neighbor experiences faster economic recovery in 2015, Canada’s economy will get a boost as well. Roughly 25% of Canada’s gross domestic product is made up of exports to the U.S.
BNS Stock: Growth, Income and Value
Scotiabank reported full-year fiscal 2014 earnings of $7.3 billion, a year-over-year increase of 10%. Earnings per share (EPS) came in at $5.66, up 11% from last year’s EPS. Annual dividends per share reached $2.56, a year-over-year increase of 7%. For the full year, BNS generated a robust return on equity (ROE) of 16.1%.
With a dividend yield of 4.3%, Scotiabank should also appeal to income investors. What’s more, the company sports a reasonable 12-month trailing price-to-earnings ratio (P/E) of only about 11, compared to the average P/E of 17.9 for its peers.
If you’re looking for a relatively safe play in a developed country, you don’t have to look much farther than the Great White North. As Canada’s premiere financial institution, BNS stock provides a rare combination of growth, income and value.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
