Yahoo Finance Scotiabank Stock Has a High Yield, But Is it a Buy?
Written by Andrew Button at The Motley Fool Canada
The Bank of Nova Scotia (TSX:BNS), better known as Scotiabank, has one of the highest yields among Canadian bank stocks. Clocking in at 6.66%, BNS’ dividend is quite generous.
But as is often the case, BNS’s overall investment value is arguably less than its dividend would make it seem. One of the ways that stocks acquire high dividend yields is by poor stock price appreciation, and that has indeed been the case with the Bank of Nova Scotia. As you can see in the chart below, the stock is barely up over a full five-year period.
Scotiabank has not delivered much in the way of capital gains recently, and its dividend yield, while high, is quite a ways behind the TSX Index’s total return over the last five years. However, past results are not future results. It is certainly possible for Scotiabank to turn things around and become a big winner among Canadian banks in the years ahead. In this article, I will explore Scotiabank’s recent earnings and what they mean for investors.
Recent results
Bank of Nova Scotia’s most recent earnings release was pretty good, boasting metrics like:
$8.4 billion in revenue, up 6%.
$2.2 billion in net income, up 25%.
$1.70 in diluted earnings per share, up 25%.
An 11.8% return on equity (ROE), up 20.4%.
A 12.9% common equity tier one (CET1) ratio, well above the regulatory requirement.
A little explanation of the items above is in order. “ROE” is net income divided by revenue; it tells you how profitable a company is. The “CET1” ratio is a risk measure, it tells you how much high-quality capital a bank has compared to risk-weighted assets. All of the figures above grew considerably in the first quarter, making the quarter a fairly successful one for Scotiabank.
The long-term results for Scotiabank have been less positive. Over the last five years, it has delivered the following compounded annual growth rates (CAGR):
Revenue: 2%.
EPS: 1.7%.
Book value: 2.3%.
Not exactly the best growth track record. Then again, the most recent quarter was an improvement, so perhaps we’re seeing the start of a new trend here.
Valuation
Having looked at Scotiabank’s recent results, we can now turn to its valuation. At today’s prices, BNS stock trades at:
9.9 times earnings.
2.6 times sales.
1.1 times book value.
4.4 times operating cash flow.
It’s a pretty cheap stock. However, the company’s performance over the last five years has not been as good as that of the other Canadian banks. The company is doing well enough to keep paying its juicy dividend, but it probably won’t do much more than that.
The big problem
Despite all of the above, the big issue with Scotiabank stock, from the perspective of a Canadian investor, isn’t its actual past results, but the difficulty in estimating future results. The Bank of Nova Scotia operates in many foreign markets that are not familiar to most Canadian investors. Examples include Latin America and Asia. Currency fluctuations can dramatically impact results from Scotiabank’s segments located in these regions. So, this stock isn’t the easiest one to analyze. Perhaps, if you are very familiar with the foreign markets BNS operates in, it’s worth owning. Apart from that, this might be one to pass on.
The post Scotiabank Stock Has a High Yield, But Is it a Buy? appeared first on The Motley Fool Canada.
Should you invest $1,000 in Bank of Nova Scotia right now?
Before you buy stock in Bank of Nova Scotia, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bank of Nova Scotia wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $15,578.55!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 3/20/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.
2024
