The Motley Fool

Should You Buy Bank of Nova Scotia?

Owning a banking stock is a great way to diversify your portfolio and also generate some pretty nice dividends in the process. One of the big Canadian firms is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which is commonly referred to as Scotiabank. And for the most part, Bank of Nova Scotia is one of my favourite Canadian banks.

A good way to determine the merit of a bank is to calculate what its return on assets is because it tells us a lot about how effective management is at growing the business. The truth is none of the banks are that amazing at it, but Bank of Nova Scotia is one of the top with a ROA of 0.9%.

What I particularly like about Bank of Nova Scotia is that its ROA is improving. When I wrote about them in the fall, they were at 0.88%. While it’s a small improvement, when you’re talking billions of dollars, small changes can still mean a lot.

And we can see that Bank of Nova Scotia is growing thanks to its quarterly results back in March. The company increased revenue by 4% to $5.96 billion from the year prior. Net income rose by 1% to $1.73 billion. Should the company continue to improve its ROA, that net income will only get stronger.

That income results in a really attractive dividend. Bank of Nova Scotia pays a quarterly dividend of $0.68. At $2.72 per share per year, that’s a 4.08% yield. And what’s more, the company continues to increase its dividend, having done it at least once every year for the past five years. And in some years, it increased the dividend more than once.

How does it grow?

Part of the reason Bank of Nova Scotia is experiencing so much growth is because it has diversified away from your typical Canadian and American banking branches, and has a strong foothold in Latin America. Specifically, it has a presence in Chile, Mexico, Peru, and Colombia, which enable it to generate revenue from these growing economies.

To get an idea on how powerful this is, consider that Bank of Nova Scotia only loan growth year over year of 4% in Canada. But in Latin America, its international division saw retail loans grow by 13% and commercial loans grow by 11%.

That kind of growth is pivotal to Bank of Nova Scotia. It can continue to deliver on its results and provide increased returns to its investors.

Should you buy?

It’s pretty clear that I’m a fan of Bank of Nova Scotia. However, in the past few weeks, the company has increased by 5%. It’s my belief that the company still has a lot more room to grow. And with a 4%+ dividend, you’re in a really nice place when it comes to earning income.

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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 Jacob Donnelly has no position in any stocks mentioned.

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