3 Major Takeaways From Bank of Nova Scotia’s Latest Results

Canada’s third-largest bank is buying back shares. Should you follow its lead?

| More on:
The Motley Fool

After Royal Bank of Canada (TSX: RY)(NYSE: RY) and Toronto Dominion Bank (TSX: TD)(NYSE: TD) reported earnings last week, it seemed that the good times would never stop for Canada’s big banks. And after Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) reported earnings Tuesday morning, that still seems to be the case. Canada’s third-largest bank posted net income of $1.39 per diluted share, an increase of 14% year over year. The result was enough to beat analyst estimates of $1.31.

Below are the three biggest takeaways from the quarter.

1. Strong results in Canadian banking

Like Canada’s other big banks, Bank of Nova Scotia has been benefiting from a resilient Canadian economy, more specifically a strong real estate market. And that continued this quarter, with net income up 12% from last year. The big event for the bank in Canada was the signing of a credit card deal with Canadian Tire, part of the bank’s efforts to grow its domestic business.

Just like the other banks, it should be worried that the good times cannot last forever. But Bank of Nova Scotia is less concentrated in Canada than any of the other big five — about half of net income in 2013 was earned domestically. So it should have no problem absorbing any weaknesses in the Canadian market.

2. Mixed results internationally

Bank of Nova Scotia’s focus on emerging markets, particularly in Latin America, is unmatched among the Canadian banks — it is this focus that has hurt its share price over the past 12 months. And in the second quarter, there were still some things to be concerned with. Lower interest rates in certain countries affected margins, and loan losses ticked up slightly as well.

But it was able to grow international loans and deposits by 14% and 16% respectively, which investors should be very happy about. Over the long run, as these economies continue to perform well, it should continue growing its asset base, which will translate into healthy earnings growth for years to come.

3. Stronger capital position

Thanks to Bank of Nova Scotia’s continued strong earnings, its capital position has strengthened, with the Basel III Common Equity Tier 1 ratio now at 9.8%. A year ago, it was at 8.6%. This has allowed it more leeway on returning capital to shareholders. In response, the bank announced a buyback program for up to 1% of outstanding shares.

To put this number in perspective, 1% of its shares would cost about $826 million at current market prices, equal to nearly half of the company’s earnings last quarter. So it’s not a small amount of money.

Nor is it a poor use of money. Due to its share price weakness, the company trades at only 13 times earnings, a low number for a company with such strong growth prospects. It might be a good idea for you to follow the bank’s lead and buy some of its stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

How Much Can You Really Earn in Passive TFSA Income?

With a diversified portfolio of high yield stocks like Enbridge (TSX:ENB) you could potentially get up to $4,400 per year…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog

2 Dividend-Paying Stocks to Help You Retire Worry Free

Here's why Toronto-Dominion Bank (TSX:TD) and SmartCentres REIT (TSX:SRU.UN) are two top dividend-paying stocks to buy now.

Read more »


Gildan Activewear: A Canadian Clothing Stock to Watch in 2023

Despite recent sales weakness, Gildan Activewear stock investors are told the company may report record revenues in 2023.

Read more »

data analyze research
Dividend Stocks

2 Stocks to Invest in a Sideways Economy

Not all stocks are equally vulnerable to the weak economy and market, and the right stable investments can help you…

Read more »

Value for money
Dividend Stocks

Why Canadian Investors Should Add This Value Stock to Their Portfolios

This value stock is down now, but this comes all from outside impacts. A year from now, you'll likely wish…

Read more »

edit Colleagues chat over ketchup chips
Bank Stocks

TFSA: 2 Canadian Dividend Stocks for Your $6,500 Contribution Room

These two top Canadian bank stocks could be great investments for a $6,500 TFSA contribution.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

This 7.1% Dividend Stock Pays Serious Cash

After the pullback, Enbridge stock offers a compelling dividend yield of almost 7.1% It's a good consideration for passive income.

Read more »


Why Canadian Investors Should Consider These 3 Cheap Value Stocks

The Canadian stock market may be trading near all-time highs, but there are still deals to be had. Here are…

Read more »