Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has been lagging behind in recent years, but the company’s focus on international markets could make it a leader among its peers going forward.
Let’s take a look at Canada’s most international bank to see if it deserves to be a top holding in your income portfolio.
Latin American growth
Bank of Nova Scotia has full-service operations in more than 30 countries, but the core of its investment over the past five years has been in Mexico, Peru, Colombia, and Chile.
The four countries are the primary members of the Pacific Alliance, a trade bloc set up to promote the free movement of capital and goods among the member states. Bank of Nova Scotia realizes the opportunities that this alliance presents and has spent more than $7 billion to build its network in the region.
With a strong presence in each market, the bank is now well positioned to capitalize on the growing opportunities that arise as trade increases within the bloc.
Every time a company enters a new country, it needs a wide variety of cash management products and services. Bank of Nova Scotia can easily meet those needs because it is present in all four countries.
The personal banking opportunities are also compelling. The Pacific Alliance countries have a combined population of more than 200 million. As the middle class expands, demand is growing for credit cards, lines of credit, car loans, and investment products.
Restructuring
Last fall Bank of Nova Scotia launched a restructuring program aimed at driving more efficiency into its Canadian and international operations. The company is making good progress and recently announced further changes designed to ensure the company remains competitive in a changing market.
For example, Bank of Nova Scotia is streamlining its back office-support operations and will set up two high-tech hubs in Toronto, eliminating some of the regional facilities.
The bank is also launching a new group called Digital Factory. The unit will focus on innovations in mobile banking and is expected to employ 350 people.
Earnings
Bank of Nova Scotia remains very profitable. The company’s international operations delivered net income of $485 million in the latest quarter, up 11% from 2014. The Canadian group contributed adjusted net income of $863 million, a 15% increase over the same period last year.
Dividends
Despite all the restructuring expenses, Bank of Nova Scotia recently increased its quarterly dividend to $0.70 per share. That’s good for a yield of 4.5%.
Should you buy?
Canadian operations remain very profitable, and the international group offers growth potential that far outstrips the domestic market. As the restructuring efforts bear fruit, investors should see strong results continue in all parts of the business. Long-term investors might want to give Bank of Nova Scotia a hard look when picking their next bank stock.
