Bank of Nova Scotia Is a Great International Stock, But Is it Too Pricey Today?

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has been on a great run of late. Is the premium multiple worth the admission? Or is this Canada’s most overvalued big bank?

The Motley Fool

With Bank of Nova Scotia (TSX: BNS)(NYSE: BNS), not only do you get a high dividend yield, a solid dividend-growth runway, and capital gains over the long run, but you also get exposure to some of the hottest international markets out there. As an investor, you’re probably well aware of the importance of geographic diversification.

As a Canadian, you’re not doing yourself any favours by being overexposed to the domestic market, especially since Canada isn’t known for being diverse segment-wise. Financials, energy, and materials make up a majority of the sectors, so if you’re a Canadian index investor, or if you own too many domestically exposed Canadian stocks, you may be lacking some of the essentials to a healthy portfolio.

Sure, Bank of Nova Scotia is a Canadian stock, but it’s also a great outlet to emerging international markets, which offer a greater potential for growth. Many Canadians know of Bank of Nova Scotia as a friendly domestic bank, but the company actually has a solid and growing presence in Central and South America. Bank of Nova Scotia has exposure to Mexico, Peru, Chile, and Colombia, which are countries that are experiencing a quickly growing middle class. That means the demand for wealth management services and loans in these markets will increase as times goes on, and Bank of Nova Scotia will be ready.

The stock currently yields 3.8%, which is slightly below its five-year historical average yield of 4% thanks to the recent rally in the stock price. Like its Big Five peers, the dividend is rock solid and will likely grow by a huge amount for many years.

Great international exposure, but at what price?

The international exposure gives growth a nice kick, but you’ll be paying a hefty premium for it today.

Bank of Nova Scotia currently trades at a 12.97 price-to-earnings multiple, a 1.9 price-to-book multiple, and a 3.8 price-to-sales multiple, all of which are higher than the company’s five-year historical average multiples of 11.5, 1.8, and 3.3, respectively.

The stock isn’t cheap, and despite its promising international presence, I don’t think the stock is a great buy at these levels, since I believe there’s better value to be had in one of the other big banks.

If you’re keen on obtaining international exposure and a top-notch dividend, you may want to keep Bank of Nova Scotia on your radar with the intention of buying shares should a pullback happen in the future.

Stay Smart. Stay hungry. Stay Foolish.

Fool contributor Joey Frenette has no position in any stocks mentioned.

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