Canadian investors are searching for top-quality dividend growth stocks to put in their self-directed RRSP accounts.
The strategy makes sense, especially when the growing distributions are invested in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a nice nest egg over time.
Let’s take a look at Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to see if it deserves to be in your portfolio.
Growth
Bank of Nova Scotia has spent billions of dollars over the past decade to build a large international division. The majority of the investment has focused on Latin America, with Mexico, Peru, Chile, and Colombia being the main markets. These four countries represent the core of the Pacific alliance trade bloc, which enables the free movement of goods and capital among the member states.
The latest deal in the region is the purchase of a majority stake in BBVA Chile for about US$2.2 billion. The acquisition is expected to close in the coming months and will double Bank of Nova Scotia’s market share in the country to about 14%.
The Pacific Alliance countries are home to more than 200 million consumers. As the middle class grows, Bank of Nova Scotia should see rising demand for loans and investment products.
Management also has its eye on boosting the company’s size in Canada, including the recently announced plans to acquire wealth management firm Jarislowsky Fraser for $950 million. The deal, which is expected to close in fiscal Q3 2018, makes Bank of Nova Scotia Canada’s third-largest active asset manager for institutional and high net worth clients.
Financials
Bank of Nova Scotia reported strong results for fiscal Q1 2018. Earnings per share rose 18% compared to the same period last year. Canadian banking net income rose 12% and international banking net income jumped 18% compared to Q1 2017.
The international operations generate nearly 30% of Bank of Nova Scotia’s profits, providing investors with a nice hedge against a potential downturn in the Canadian economy.
Dividends
Bank of Nova Scotia recently raised its quarterly dividend by $0.03 cents per share to $0.82. That’s good for an annualized yield of 4.1%.
Returns
Long-term investors have done well holding this stock. A $10,000 investment in Bank of Nova Scotia 20 years ago would be worth more than $80,000 today with the dividends reinvested.
Should you buy?
Bank of Nova Scotia currently trades at a discount to its larger peers. Part of the reason may be the perceived risks of the exposure to Latin America, but the region is much more stable than in past years, and likely offers better growth prospects than does Canada.
If you’re a buy-and-hold investor, Bank of Nova Scotia looks like an attractive pick today for your RRSP portfolio.
