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 by total assets, and both of their stocks represent very attractive long-term investment opportunities today.
However, the laws of diversification state that we cannot own both, so let’s take a closer look at each company’s earnings results in fiscal 2015, their stocks’ valuations, and their dividends to determine which is the better buy today.
Bank of Nova Scotia
Bank of Nova Scotia is the third-largest bank in Canada, and its stock has fallen about 15% year-to-date, including a decline of over 7% since it released its earnings results on the morning of December 1 for its fiscal year ended on October 31, 2015. Here’s a summary of eight of the most notable statistics from fiscal 2015 compared with fiscal 2014:
- Adjusted net income increased 2.9% to $7.21 billion
- Adjusted earnings per share increased 4.4% to $5.67
- Total revenue on a taxable equivalent basis increased 2% to $24.44 billion
- Total assets increased 6.3% to $856.5 billion
- Total deposits increased 8.5% to $600.92 billion
- Total loans increased 8.1% to $458.63 billion
- Total common shareholders’ equity increased 9.2% to $49.09 billion
- Book value per share increased 10.4% to $40.80
At today’s levels, Bank of Nova Scotia’s stock trades at 9.9 times fiscal 2015’s adjusted earnings per share of $5.67, 9.4 times fiscal 2016’s estimated earnings per share of $5.97, and 8.8 times fiscal 2017’s estimated earnings per share of $6.39, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 11.8 and the industry average multiple of 12.9. It also trades at 1.38 times its book value per share of $40.80, which is inexpensive compared with its five-year average market-to-book value of 1.94.
Additionally, Bank of Nova Scotia pays a quarterly dividend of $0.70 per share, or $2.80 per share annually, giving its stock a 5% yield. It is also important to note that the company has raised its annual dividend payment for five consecutive years, and it is currently on pace for 2016 to mark the sixth consecutive year with an increase.
Bank of Montreal
Bank of Montreal is the fourth-largest bank in Canada, and its stock has fallen over 5% year-to-date, including an increase of about 1% since it released its earnings results on the morning of December 1 for its fiscal year ended on October 31, 2015. Here’s a summary of eight of the most notable statistics from fiscal 2015 compared with fiscal 2014:
- Adjusted net income increased 5.1% to $4.68 billion
- Adjusted diluted earnings per share increased 6.2% to $7.00
- Total revenue, net of insurance claims, commissions, and changes in policy benefit liabilities, increased 8.5% to $18.14 billion
- Total assets increased 9% to $641.88 billion
- Total deposits increased 11.5% to $438.17 billion
- Total loans and acceptances increased 10.2% to $334.02 billion
- Total common shareholders’ equity increased 15.7% to $36.18 billion
- Book value per share increased 16.9% to $56.31
At today’s levels, Bank of Montreal’s stock trades at 11.1 times fiscal 2015’s adjusted earnings per share of $7.00, 10.8 times fiscal 2016’s estimated earnings per share of $7.18, and 10.2 times fiscal 2017’s estimated earnings per share of $7.62, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 11.4 and the industry average multiple of 12.9. It also trades at 1.38 times its book value per share of $56.31, which is inexpensive compared with its five-year average market-to-book value of 1.55.
In addition, Bank of Montreal pays a quarterly dividend of $0.84 per share, or $3.36 per share annually, giving its stock a 4.3% yield. Investors must also note that the company has increased its annual dividend payment for three consecutive years, and it is currently on pace for 2016 to mark the fourth consecutive year with an increase.
Which is the better buy today?
Here’s how each company stacks up when comparing their earnings results in fiscal 2015, their stocks’ valuations, and their dividends:
| Metric | Bank of Nova Scotia | Bank of Montreal |
| Earnings Strength | 2 | 1 |
| Current P/E Valuation | 1 | 2 |
| Forward P/E Valuations | 1 | 2 |
| Market-to-Book Value | 1 | 1 |
| Dividend Yield | 1 | 2 |
| Dividend Growth | 1 | 2 |
| Average Ranking | 1.17 | 1.67 |
As the chart above depicts, both stocks trade at attractive market-to-book values, and Bank of Montreal reported stronger earnings results in fiscal 2015, but Bank of Nova Scotia’s stock trades at more attractive current and forward price-to-earnings valuations, it has a higher dividend yield, and it has a longer active streak of annual dividend increases, giving it the edge in this match up.
With all of this being said, both stocks represent great long-term investment opportunities today, so Foolish investors should strongly consider beginning to scale it to positions in one of them over the next couple of trading sessions.
