Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) recently released its impressive third-quarter earnings results, which saw net income increase by 7% year over year to $2.1 billion, and revenue increased by 4% year over year to $6.89 billion. It was a solid quarter, and there are many reasons for investors to be bullish on the bank’s promising emerging market segment going forward.
The Mexican, Latin American, Caribbean, and Asian segments have consistently delivered solid results over the last few years, and, going forward, I expect Bank of Nova Scotia will be very well equipped to deliver superior returns over the long term as it continues to expand its footprint in high-flying emerging markets.
Why BNS is a solid choice for those seeking exposure to international markets
The Big Six Canadian banks are all terrific long-term investments, but each of them come in a different flavour. For an individual investor, it’s important to do your homework to see which is right for you. If next-level growth is what you’re looking for out of a bank, then Bank of Nova Scotia should probably be on the top of your list. The bank has a growing presence in many hot emerging markets, which can offer greater long-term rewards without taking on an excessive amount of additional risk.
The Canadian market can be quite fickle at times, so it’s in the best interest of the big banks to diversify away from the domestic market to become more robust. In the most recent quarter, Bank of Nova Scotia’s Canadian division saw a mere 2.7% increase in net income on a year-over-year basis, which was quite underwhelming when you consider its Mexican division had a 34% year-over-year increase in net income.
Sure, Canada still accounts for most a majority of Bank of Nova Scotia’s net income, but as the management team continues to expand its footprint across emerging markets, the domestic market will account for less of the bank’s earnings over time.
Of course, operating in an emerging market comes with a higher degree of risk, but I believe the opportunity to obtain superior long-term returns makes it worthwhile. After all, it’s probably riskier to be overexposed to the Canadian market, or worse, being exposed to just a small part of Canada like with regional banks.
Bottom line
I believe every Canadian investor should have a little bit of exposure to the emerging markets, and Bank of Nova Scotia is a great, safe way to obtain this exposure. The bank has had an impressive 15% ROE over the last year, and I believe Bank of Nova Scotia’s magnitude of dividend growth is set to increase over the next few years thanks to its exposure to the hot emerging markets and many other industry-wide tailwinds such as rising interest rates.
Now is a fantastic time to buy shares of BNS as they are trading at a modest 11 times 2018 expected earnings with a bountiful 4.07% dividend yield.
