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5 Reasons Bank of Nova Scotia Is a Buy After Q3 Earnings

Bank of Nova Scotia  (TSX:BNS)(NYSE:BNS) released its third-quarter results on Tuesday. The company reached net income of over $2.1 billion for the period, up 7% from the prior year. Revenue for the quarter totaled $6.89 billion, which was up almost 4% year over year primarily due to net interest income growing by over 6%. Overall, earnings per share totaling $1.66 were also up from $1.54 in 2016.

The company performed well in its latest quarter. Below are five reasons Bank of Nova Scotia would make a great investment.

The bank is being more diversified globally and less dependent on the Canadian economy

Bank of Nova Scotia saw its income in Canada grow just 2.7% year over year, although it still made up 55% of the company’s net income, but that is down from almost 58% a year ago as the bank tries to be less dependent on its Canadian operations.

The bank’s Mexican operations had the largest improvement in net income with a year over year rise of over 34%, with the U.S. a close second at 30% profit growth. The total income from these two countries accounted for 15% of the bank’s total profitability this quarter, up from 12% a year ago.

The bank’s dividend continues to grow

The bank also announced in its earnings that it would be increasing its dividend to $0.79 per share. However, the increase should not come as a surprise as the company is simply on schedule for its rate hike. In the prior three years, the bank had increased dividends for the second- and fourth-quarter payments, and it has again followed that pattern this year. Currently, Bank of Nova Scotia pays a dividend of about 4.1% annually, which is comparable to the other banks.

Revenue and income from banking continues to grow

Banking continues to be strong for the company as its Canadian banking segment saw revenues grow by 7%, while income grew by over 12%. The international banking division also saw sales rise 9% year over year, while income was up 16%.

The stock has produced good returns for investors

Although 2017 has been a bad year for Canadian banks, Bank of Nova Scotia has been able to achieve growth in its share price of over 3% year to date and over 12% in the past 12 months. In five years, the stock has grown by almost 50% and, with a strong performance in its latest earnings, is poised to continue that climb.

A strong outlook going forward

Interest rates are expected to continue to rise again this year, which could mean larger spreads and more income for the banking industry. Interest rate increases are indicative of a strong economy, which is also good for banks since it means more deposits, more spending, and more borrowing.

Bottom line

Bank of Nova Scotia is a well-diversified bank with a great deal of operations worldwide, and it has many avenues in which it can grow both sales and profits.

Shareholders didn’t reward the bank much for its strong quarter as the stock showed no significant gain on Tuesday, making it an attractive pick-up for investors. With all Canadian bank stocks having a lacklustre 2017, it may just be a matter of time before the sector sees prices rise again.

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Fool contributor David Jagielski has no positions in any stocks mentioned.

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