Bank of Nova Scotia (TSX:BNS) vs. Bank of Montreal (TSX:BMO): Which Is a Better Buy Today?

Is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Bank of Montreal (TSX:BMO)(NYSE:BMO) a better investment after reporting their Q3 results?

| More on:
question marks written reminders tickets

Image source: Getty Images

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Bank of Montreal (TSX:BMO)(NYSE:BMO) just reported their fiscal third-quarter earnings yesterday.

With the big Canadian bank stocks, investors should have a long-term view because a big part of their returns come from their juicy and growing dividends. Which is a better buy for the next five years?

Bank of Nova Scotia

Scotiabank’s international expansion appears to be bearing fruit. The bank increased its adjusted earnings per share by 6.8% for Q3 against the comparable quarter a year ago. This was a marked improvement compared to its year-to-date earnings results, which were essentially flat.

Scotiabank had been reducing or selling its international investments to focus on key markets in the Pacific Alliance region. Indeed, last year, the bank doubled its market share and became the third-largest private bank in Chile by acquiring BBVA Chile and expanded its small and medium enterprise operations in Colombia by acquiring assets from Citibank.

These strategic moves propelled the bank’s adjusted earnings from the International Banking segment by 22% year over year versus the nine months a year ago.

On another note, thanks to the MD Financial and Jarislowsky Fraser acquisitions last year, the Canadian Wealth Management earnings grew 20%.

BNS stock hiked its dividend by 5.9% year over year and now offers a juicy yield of nearly 5.3%. Also, at about $68.60 per share, the stock is about 20% undervalued, which is a wonderful bargain in a blue-chip dividend-growth stock.

Glass piggy bank

Bank of Montreal

BMO increased its adjusted earnings per share by a lacklustre rate of 1% for Q3 against the comparable quarter a year ago. What may have really scared investors (BMO stock fell 3.4% for the day) was that its provision for credit losses (PCL) made a scary jump of 64% year over year.

However, it’s important to note that the PCL ratio climbed from last year’s 0.19% to just 0.28% for the quarter. Moreover, the 0.28% aligns with the Big Six banks’ average.

So, if anything, the PCL ratio for Q3 2018 was an anomaly. In other words, I don’t see this jump as a deterioration of BMO’s loan quality, unless this kind of jump becomes a trend, and the PCL ratio stays higher than normal for an extended period.

At about $89.20 per share, BMO stock offers a nice yield of 4.6%, and shares that are about 19% undervalued.

Who wins?

It was a close race. Because Scotiabank offers a slightly bigger discount and 14% higher in dividend income, I proclaim it as the winner! Longer term, at the current depressed levels, both bank stocks should be able to deliver total returns of more than 13% per year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Bank of Nova Scotia. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »