Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is often passed over by investors in favour of its larger peers, but the company’s unique focus on a specific international market could make it a long-term winner.
Let’s take a closer look at Bank of Nova Scotia to see if the stock deserves to be a core holding.
Latin American operations
Bank of Nova Scotia is the most international of the Canadian banks. The company has full-service operations in more than 30 countries, but the bulk of its investments to date lies in a core group situated in Latin America.
Over the past five years Bank of Nova Scotia has invested more than $7 billion to acquire assets in Mexico, Colombia, Peru, and Chile. These four countries form the core of the Pacific Alliance, a trading bloc set up to enable the free movement of capital and goods among member states.
The bank has endured some growing pains in the region as high costs have cut into margins, but management is doing a good job of restructuring the Latin American operations, and the results are starting to come out in the numbers.
For Bank of Nova Scotia’s third quarter that wrapped up at the end of July, the international division delivered net income of $485 million, an 11% increase over Q3 2014. Latin American loans increased by 12% and assets under management also grew at a solid clip.
The region is promising for both commercial and personal banking opportunities.
As businesses expand into the other Pacific Alliance markets, they need to sign up for variety of cash management products and services. By having a strong presence in each of the four markets, Bank of Nova Scotia is well positioned to benefit.
The four countries also have a combined population of more than 200 million. That is an attractive market, especially given the huge segment of young people who are well educated and earning decent money. As the middle class expands, demand increases for car loans, credit cards, lines of credit, and investment products.
Bank of Nova Scotia continues to execute well in Canada. Adjusted Q3 net income in the domestic market came in at $863 million, up 15% compared with Q3 2014. Assets under management rose 13% and loans increased by 3%. The company announced a significant restructuring process last fall and recently said it is extending the scope of the program. Investors should see positive results from those efforts in the coming quarters.
Bank of Nova Scotia raised its quarterly dividend when it reported the Q3 results. The company now pays $0.70 per share, which yields about 4.7%. Investors should interpret the recent payout increase as a sign that management is comfortable with the earnings outlook as well as the broader risk profile of the bank’s loan portfolio.
Should you buy?
The emphasis on international markets is starting to pay off. If you are looking for a Canadian bank stock with a diversified revenue stream and a healthy dividend, Bank of Nova Scotia might be the best way to go.