Is the Bank of Nova Scotia a Safe Investment?

The Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is moving off its six-month lows. Here’s what investors need to know.

| More on:

The Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is finally finding some support after a six-month slide that knocked 15% off its share price. In just the past week, the stock has regained more than 5%, and investors are wondering whether this is the start of a rally towards new highs.

Let’s take a look at the stock to see if it deserves to be in your portfolio right now.

Big changes

Back in November, the Bank of Nova Scotia, Canada’s third-largest bank, surprised markets with the announcement of a major restructuring plan designed to improve operations in the company’s international division.

The bank took a one-time charge of $451 million and said it was cutting 1,500 jobs. Bad investments in Venezuela and non-performing loans in the Caribbean accounted for part of the costs. The other component consisted of the planned closure of roughly 120 international branches, primarily located in Mexico.

The company is betting big on Latin America for future growth, but the Mexican operations have been underperforming.

Once all the dust clears from the reorganization, the bank expects to see a cost savings of about $120 million per year.

Brian Porter has been the CEO of the bank for just over a year and has made several changes to the senior management team. At the time the restructuring was announced, the head of Latin American operations and the head of the Mexican unit both got their walking papers. Earlier in 2014, Porter changed the leaders of several other divisions, including wealth management, marketing, and capital markets. He also cleaned house in the C-suite, changing the chief operating officer and the chief risk officer.

When a new CEO takes over at a bank, the market expects a certain number of changes at the senior level. The massive overhaul at the Bank of Nova Scotia suggests that things were pretty bad right across the company.

The positive side of the drastic management shuffle is that Porter is sending a strong signal to both the market and his investors that he is serious about improving the bank’s operations.

Mortgage concerns

The Bank of Nova Scotia had $189 billion in Canadian residential mortgages on its books as of October 31, 2014. Insured mortgages represented 52% of the portfolio, and the loan-to-value ratio on the uninsured portion was 54%.

The portfolio doesn’t look very risky, and the bank should be able to withstand a difficult period in the housing market. One point investors need to focus on is the fact that 15% of the mortgages are located in Alberta.

If oil prices remain low for an extended period of time, there is a risk that the Alberta housing market could crash.

Should you buy?

The Bank of Nova Scotia has increased its dividend seven times in the past five years, and the current payout of $2.64 per share yields about 4%. The stock currently trades at an attractive 11.5 times earnings. There are some headwinds facing the bank this year, but it should be a good long-term bet.

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 Andrew Walker has no position in any stocks mentioned.

More on Bank Stocks

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

analyze data
Bank Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

This Canadian stock has about 49% ownership by the public, and with growth and dividends to consider, it's a top…

Read more »

falling red arrow and lifting
Stocks for Beginners

1 Dividend Stock Down 18% to Buy Right Now

CIBC (TSX:CM) is a strong dividend stock investors should certainly consider not just for passive income, but future growth as…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Forget TD Stock: 2 Tech Stocks to Buy Instead

TD remains a solid income stock but two outperforming tech stocks are better buys for their strong growth and upside…

Read more »

Question marks in a pile
Bank Stocks

Where Will Royal Bank of Canada Stock Be in 5 Years?

Royal Bank's continued focus on a strong capital position plus its acquisition of HSBC will likely ensure prosperous times ahead.

Read more »

Payday ringed on a calendar
Bank Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000 and TD Stock

TD (TSX:TD) stock has been a poor performer over the last few years, but could be a big passive-income winner…

Read more »

Man considering whether to sell or buy
Bank Stocks

Is RBC Stock a Buy, Sell, or Hold?

Shares of Royal Bank of Canada have delivered game-changing returns to shareholders in the last two decades. Is RBC stock…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Is Scotiabank (BNS) Stock a Buy, Sell, or Hold?

Let's dive into whether the Bank of Nova Scotia (TSX:BNS) remains a solid buy or if it's more of a…

Read more »