Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Bank of Montreal (TSX:BMO)(NYSE:BMO) are the third and fourth-largest banks in Canada in terms of total assets, and both of their stocks represent very attractive long-term investment opportunities today.
However, the laws of diversification clearly state that we cannot buy both, so let’s take a closer look at each company’s earnings results year-to-date in fiscal 2015, their stocks’ valuations, and their dividends to determine which represents the better buy today.
Bank of Nova Scotia: Canada’s third-largest bank
Bank of Nova Scotia’s stock has fallen over 12% year-to-date, including a decline of about 3% since it announced its third-quarter earnings results on the morning of August 28. Here’s a summary of eight of the most notable statistics from the first nine months of fiscal 2015 compared with the first nine months of fiscal 2014:
- Adjusted net income increased 1.2% to $5.37 billion
- Adjusted earnings per diluted share increased 2.4% to $4.22
- Total revenue increased 0.4% to $17.92 billion
- Total assets increased 9% to $863.1 billion
- Total deposits increased 10.5% to $602.8 billion
- Total customer loans and acceptances increased 7.7% to $462.1 billion
- Total common shareholders’ equity increased 10.2% to $48.7 billion
- Book value per share increased 10.9% to $40.30
At current levels, Bank of Nova Scotia’s stock trades at 10.2 times fiscal 2015’s estimated earnings per share of $5.69 and 9.7 times fiscal 2016’s estimated earnings per share of $6.03, both of which are inexpensive compared with its five-year price-to-earnings multiple of 12.4 and the industry average multiple of 12. It also trades at a mere 1.44 times its book value per share of $40.30, which is inexpensive compared with its market-to-book value of 2.04 at the end of the third quarter of fiscal 2014.
Additionally, Bank of Nova Scotia pays a quarterly dividend of $0.70 per share, or $2.80 per share annually, which gives its stock a 4.8% yield at today’s levels. It is also important to note that the company has increased its dividend for five consecutive years.
Bank of Montreal: Canada’s fourth-largest bank
Bank of Montreal’s stock has fallen over 15.5% year-to-date, including an increase of over 4.5% since it announced its third-quarter earnings results on the morning of August 25. Here’s a summary of eight of the most notable statistics from the first nine months of fiscal 2015 compared with the first nine months of fiscal 2014:
- Adjusted net income increased 2.2% to $3.42 billion
- Adjusted earnings per diluted share increased 2.6% to $5.10
- Total revenue increased 6.1% to $14.41 billion
- Total assets increased 14.6% to $672.44 billion
- Total deposits increased 12.1% to $447.62 billion
- Total loans and acceptances increased 11.4% to $329.18 billion
- Total equity increased 15% to $38.2 billion
- Book value per share increased 18.6% to $55.36
At today’s levels, Bank of Montreal’s stock trades at 10.2 times fiscal 2015’s estimated earnings per share of $6.80 and 9.7 times fiscal 2016’s estimated earnings per share of $7.11, both of which are inexpensive compared with its five-year price-to-earnings multiple of 11.4 and the industry average multiple of 12. It also trades at a mere 1.25 times its book value per share of $55.36, which is inexpensive compared with its market-to-book value of 1.74 at the end of the third quarter of fiscal 2014.
In addition, Bank of Montreal pays a quarterly dividend of $0.82 per share, or $3.28 per share annually, giving its stock a 4.7% yield at current levels. Investors should also note that the company has increased its dividend for four consecutive years.
Which is the better buy today?
After directly comparing Bank of Nova Scotia and Bank of Montreal, I think Bank of Montreal represents the better long-term investment opportunity today.
Both stocks trade at inexpensive forward valuations, but Bank of Montreal reported stronger earnings results in the first nine months of fiscal 2015 and it has a slightly higher dividend yield, giving it an easy win in this match-up. Foolish investors should take a closer look and strongly consider beginning to scale in to positions today.
