Foolish Take: Scotiabank (TSX:BNS) Is My Top Bank Stock This Year

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) had a tough 2020, but Scotiabank looks poised to put together a comeback this year.

| More on:
Light bulb with jester hat perched on top

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canadian bank stocks were predictably pummeled during the March market pullback in 2020. However, Canada’s largest financial institutions managed to come all the way back into the black by the end of the previous year. I’d looked at my top bank stocks when this month kicked off. Today, I want to switch up my top two and delve deeper into Scotiabank (TSX:BNS)(NYSE:BNS), my favourite Canadian bank stock for 2021. Let’s dive in.

Why Scotiabank slipped in 2020

Scotiabank is the third-largest bank in Canada, behind Royal Bank and Toronto-Dominion Bank. It is often called “The International Bank” due to its large global footprint. Scotiabank boasts its largest international presence in Latin America. Growth in this region has bolstered the bank over the past decade. However, events in 2020 saw this boon become a hindrance for Scotia.

Economies all around the world were hit hard by the COVID-19 pandemic and the restrictions and lockdowns that were born out of it. No region has been hit harder than Latin America. According to the United Nations Economic Commission, South American GDP per capita sank to the same level as 2010 by the end of 2020. Argentina, the third most populous country in South America, had the longest lockdown in the world from March 20 to November 8.

With the onset of vaccines, there are hopes for an economic recovery across Latin America in 2021. This region still offers a lot of potential. Scotiabank took a hit due to its performance in 2020, but its turnaround will bolster this top Canadian bank going forward.

How its earnings shook out last year

Scotiabank released its fourth-quarter and full-year 2020 results on December 1. Before earnings were released, I’d warned investors that Latin America’s struggles could weigh on its overall performance. Interestingly, Scotiabank managed to beat expectations in Q4 2020.

The bank was still forced to earmark $1.1 billion in provisions for loan losses in the quarter. This has been a drag on earnings for Canada’s top banks in the face of this historic crisis. Adjusted earnings for Scotiabank came in at $1.45 per share. This was down from the previous year, but still ahead of analyst expectations. Like its peers, Scotiabank drew strength from its Capital Markets and Wealth Management segment.

Scotiabank CEO Brian Porter praised the economic recovery underway in Mexico, Chile, Peru, and Colombia. Because of this, he said that the bank is well positioned to return to its full potential in 2021.

Here’s how Scotiabank measures up to its competitors

The bank maintained its quarterly dividend of $0.90 per share in its Q4 2020 report. That represents a 5.3% yield. At the time of this writing, Scotiabank boasts the strongest yield of its peers.

Like its peers, Scotiabank also possesses a phenomenal balance sheet. The stock last had a price-to-earnings ratio of 12 and a price-to-book value of 1.3. That puts Scotiabank in favourable value territory. This bank stock offers up attractive income, good value, and a chance to hop on the comeback trail with its Latin American partners.

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 Ambrose O'Callaghan owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Bank Stocks

Man holding magnifying glass over a document
Bank Stocks

TD Bank Stock Looks Severely Undervalued Going Into the 2nd Half of 2022

TD Bank (TSX:TD)(NYSE:TD) stock has been under pressure amid the TSX Index correction but may be among the best bounce-back…

Read more »

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »

You Should Know This
Bank Stocks

TD Bank Stock Faces Challenge From U.S. Senate!

Toronto-Dominion Bank's (TSX:TD)(NYSE:TD) latest deal is being blocked by the U.S. Senate.

Read more »

question marks written reminders tickets
Bank Stocks

Is TD Bank (TSX:TD) or Royal Bank (TSX:RY) Stock a Buy?

Canadian banks appear oversold. Is this the right time to buy TD or Royal Bank stock?

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

2 Top TSX Financial Stocks to Buy for a Retirement Fund During the Market Correction

These top TSX financial stocks now look oversold for a self-directed TFSA or RRSP portfolio.

Read more »

Growth from coins
Dividend Stocks

Dividends Aren’t Guaranteed, Yet 3 TSX Stocks Keep Raising Payouts

No company will guarantee dividend payments, but three TSX Dividend Aristocrats will not break their dividend-growth streaks.

Read more »

Bank Stocks

Should You Buy TD Bank (TSX:TD) Stock Now?

TD stock looks oversold. Is this the right time to buy?

Read more »