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Bank of Nova Scotia: Time to Buy This Stock?

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) just reported strong fiscal Q4 and full-year 2016 results.

Let’s take a look at Canada’s most international bank to see if it deserves to be in your portfolio.

Earnings

Bank of Nova Scotia delivered better-than-expected results in the most recent quarter, earning net income of $2.01 billion, or $1.57 per share, compared $1.84 billion, or $1.45 per share, in the same period last year.

For the full year, fiscal 2016 net income was $7.65 billion–up a solid 6% compared to 2015.

These are impressive numbers given the economic headwinds facing the Canadian banks and are indicative of the progress management has made in its restructuring efforts over the past year.

International focus

Bank of Nova Scotia’s earnings from its international operations topped $2 billion in 2016. It’s the first time the group has broken through the milestone, and further growth is expected.

The bank has invested heavily in Latin America with a focus on Mexico, Colombia, Peru, and Chile. These countries form the core of the Pacific Alliance, which is a trade bloc set up to promote the free movement of capital and goods among the member states.

International banking delivered Q4 net income of $547 million–up 9% compared to Q4 2015. Loans rose 5% and deposits jumped 14% in the quarter.

The bank is making good progress on its efforts to reduce expenses, and recent acquisitions are having a positive impact on results.

Going forward, Bank of Nova Scotia could add to its Latin American portfolio if attractive acquisitions become available. The company’s CET1 capital ratio is now at 11%, so there is flexibility to pursue deals.

Dividends

Bank of Nova Scotia raised its dividend twice in the past year, and investors should see steady growth continue.

The current payout offers a yield of 4%.

Investors might also see the bank get aggressive on share buybacks as a way to deploy some of the excess capital.

Risks

Bank of Nova Scotia has more exposure to the energy sector than some of its peers. This is why the stock came under pressure last year and in early 2016. The company finished fiscal Q4 with $15.6 billion in drawn corporate energy exposure with 52% considered investment grade.

Most of the banks believe the worst is over for the oil patch, but another plunge in crude prices would put pressure on the portfolio.

On the housing side, Bank of Nova Scotia has $193 billion in Canadian residential mortgages on the books. Insured mortgages represent 57% of the portfolio, and the loan-to-value ratio on the rest is 50%.

This means house prices would have to tank significantly before the bank takes a material hit on the loans.

Should you buy?

Restructuring efforts across the company are bearing fruit, and the international operations are performing well. If you want a balanced pick in the banking space, Bank of Nova Scotia is an attractive choice today.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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