Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) reported its second-quarter earnings on May 29, 2015. The market reacted positively as shares rose 1.3% to $65.40 per share by market close.
The business
The bank is chugging along fine compared with the same quarter last year. Earnings per share grew 2% and revenues rose 4% to $5.94 billion.
The bank also plans to continue to grow in its priority markets. It acquired 51% of Cencosud’s financial services business in Chile in 2014. This provides Bank of Nova Scotia with access to over two million new customers.
Dividends and buybacks
As expected, Bank of Nova Scotia is maintaining its quarterly dividend at $0.68 per share. The bank currently pays a yield close to 4.2%. So, if you buy $1,000 of shares today, you would receive close to $10.50 in dividends in July.
Investors wishing to receive the next dividend from the Bank of Nova Scotia should buy the shares before July 3. In doing so, you will receive your dividend payment on July 29.
The bank also plans to buy back 24 million of its common shares, which is about 2% of the float. This is not a bad time for buybacks because the bank is fairly valued. It is trading at a multiple of about 11.3, while in the past five years the bank traded at a normal price-to-earnings ratio of 11.7.
Performance
I believe it’s more meaningful to compare the Big Five Banks’ performance in the long term and to look for consistency instead of comparing short-term performance. Other than Bank of Nova Scotia, the Big Five include Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, and Canadian Imperial Bank of Commerce.
Here’s a total return comparison of the banks in different periods. I’d say Bank of Nova Scotia wasn’t bad, but Royal Bank seems to be the most consistent one, giving total returns of 10% or more in all the periods.
| Bank | 1-Year | 3-Yr | 5-Yr | 10-Yr | 15-Yr |
| BNS | -2.3% | 11.2% | 9.8% | 8% | 11.1% |
| Royal Bank | 9.9% | 19.1% | 10.6% | 10.3% | 11.8% |
| TD | 4.3% | 14.5% | 11.5% | 9.7% | 9.2% |
| BMO | 3.7% | 15.4% | 7.8% | 6.5% | 9% |
| CIBC | 3.5% | 13.9% | 9.6% | 6% | 8.6% |
Then again, these results should be taken with a grain of salt because returns are not only based on the business performance of the company, but are also dependent on the value you got from the price you paid. So, make sure you don’t overpay for any company!
In conclusion
The Bank of Nova Scotia is not only a great business, with its history going back to 1833, but it is also selling at fair value. Its second-quarter earnings results are positive and the market cheered it on. Investors looking to get exposure to the solid Canadian banking sector should certainly consider Bank of Nova Scotia’s shares before it pays out its dividend in July.
