Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) is a terrific Canadian bank that is a great way to capitalize on growth coming from the emerging markets. The company reported strong Q4 2016 results, and that could be the start of a sustained rally to higher levels. There’s a huge amount of momentum coming from the international segment which will provide the company a nice boost to earnings.
Although the company soared a whopping a 38.8% last year, I still believe there’s plenty of room to run given the large amount of catalysts that may propel the stock higher in 2017.
The international division is what makes Bank of Nova Scotia such an interesting investment. It is a great play on both the domestic market as well as the fast-growing emerging markets. The company has over 14 million international customers, and this number is expected to grow by leaps and bounds as the company makes the move to consolidate a very fragmented international market.
The international division is growing like a weed, and the momentum is expected to carry over into this year. The company also has a terrific expense-management strategy that will improve operational efficiencies and drive earnings for now and many years down the road. The bank already has a very impressive ROE of 13.7%, but it plans to improve this even further by investing in efforts to drive long-term earnings growth.
The bank recently invested $275 million as a part of a strategic initiative to improve the company’s customer experience as well as to drive productivity. The company has a proven track record of getting the most out of its investment initiatives, so it’s safe to say that such efforts will give the company a nice top-line boost for the quarters to come.
The stock currently yields a bountiful 3.75% which is expected to grow by a huge amount over the next few years thanks to an expected rise in free cash flow. The company has increased its dividend almost every year over the past decade with the exception of the years following the Financial Crisis, when the dividend was kept static.
What about value?
The stock currently trades at a 13.5 price-to-earnings with a 1.8 price-to-book multiple, and both of which are in line with the company’s historical averages. The stock looks fair valued based on these metrics right now, but remember the long-term catalysts are not being considered in these numbers.
I believe the stock is a fantastic buy at current levels and is actually undervalued considering the tailwinds that the company will ride this year. If you’re looking for a safe dividend and international growth, then look no further than Bank of Nova Scotia. I think it will be one of the top-performing banks in 2017.
