Kay Ng: Bank of Nova Scotia
The stocks of the Big 5 banks have been excellent long-term investments, especially for conservative investors looking for current income and long-term returns of more than 8% per year.
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) stock is depressed in anticipation of a global economic slowdown. However, it’s exactly now that it’s a fabulous opportunity to buy the stock with a fat but safe yield of close to 5% while it’s on the cheap!
The international bank’s dividend is secured with a payout ratio of about 48% this year. So, there’s a margin of safety to maintain its dividend even when there happens to be temporary spikes in the payout ratio in the future, such as when a financial crisis occurs.
At CAD$70.60 per share at writing, Scotiabank trades at a blended price-to-earnings ratio of about 9.9, while its long-term normal price-to-earnings ratio is about 11.9. Additionally, the bank is estimated to increase its earnings per share by about 6.3% per year over the next three to five years.
Altogether, Scotiabank’s above-average yield, stable growth, and multiple expansion potential can lead to total returns of about 11-15% per year over the next three to five years. It should be a top choice for conservative income and total returns investors alike.
Fool contributor Kay Ng owns shares of Bank of Nova Scotia.
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