The rally in Canadian stocks is making it harder to find quality big-yield names, but savvy income investors can still dig up some attractive picks.
Let’s take a look at Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Inter Pipeline Ltd. (TSX:IPL) to see why they should be on your radar.
Bank of Nova Scotia
Canadian banks are facing some economic headwinds right now, but Bank of Nova Scotia continues to deliver solid results. The company’s Q1 2016 net income rose 5% year over year to $1.8 billion.
Canadian banking remains the bread and butter of the business, generating 50% of the company’s net earnings, but Bank of Nova Scotia’s large International Banking group contributes 29% of profits and the Global Banking and Markets division kicks in the remaining 21%.
This balanced revenue stream provides a nice hedge against weakness in the Canadian economy, and investors could see strong growth coming out of the international operations in the coming years.
Why?
Bank of Nova Scotia is betting big on Mexico, Peru, Columbia, and Chile. You might think this is an odd strategy, but these countries form the core of the Pacific Alliance, a unique trade bloc set up to promote the free movement of goods and capital among member states. With a combined market of 200 million consumers, the Pacific Alliance is ripe with opportunity.
In fact, Bank of Nova Scotia is already seeing strong results from the international group. Net income for Q1 rose 21% compared with 2015. Loans increased 19% and deposits jumped 27%.
The stock has staged an impressive rally in recent months, but it still trades at an attractive 11 times earnings and just 1.5 times book value.
The quarterly dividend to $0.72 per share offers a 4.6% yield.
Inter Pipeline Ltd.
Inter Pipeline transports 15% of Canadian conventional oil output and 35% of the country’s oil sands production. It also owns a natural gas liquids (NGL) extraction business and a growing liquids storage operation.
With the exception of the NGL group, the company is performing very well.
Oil sands and conventional oil funds from operations continue to grow on the back of pipeline expansions and strong momentum in the Viking light oil play. Over in Europe, the storage facilities are operating near capacity with utilization rates hitting 98% in Q1 2016.
Inter pipeline raised its dividend by 6% last November. The current monthly payout of 13 cents per share provides a yield of 5.9%.
