BANK OF NOVA SCOTIA $52.20 (Toronto symbol BNS: Shares outstanding: 1.1 billion; Market cap: $57.4 billion; TSINetwork Rating: Above Average; Div. yield: 4.2%, www.scotiabank.com) is the third-largest of Canada’s five big banks, with assets of $659.7 billion.
Without one-time items, the bank earned $1.15 a share in the quarter ended April 30, 2012, up 8.5% from $1.06 a share a year earlier. It is also setting aside less money to cover bad loans: loan-loss provisions fell 2.2%, to $264 million from $270 million a year ago.
The Canadian banking division’s earnings jumped 23.3% due to an increase in deposits and higher demand for loans. The division also did a good job of controlling its costs.
The international banking division’s earnings rose 13.7%, also on stronger loan demand, particularly in Asia and Latin America. Bank of Nova Scotia recently bought 51% of Colombia’s Banco Colpatria for $1 billion, and this acquisition also contributed to the higher earnings. The wealth management division’s earnings rose 14.2%, mostly because of higher sales of insurance and mutual funds.
Thanks to its strong outlook, Bank of Nova Scotia has raised its dividend twice in the past year. The current annual rate of $2.20 a share yields 4.2%.
Bank of Nova Scotia is still a safety-conscious buy.
CANADIAN PACIFIC RAILWAY $74.58 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $12.7 billion; TSINetwork Rating: Average; Dividend yield: 1.9%; www.cpr.ca) is the 2012 “Stock of the Year” for The Successful Investor, our conservative growth advisory.
We chose CP early this year because we liked its plan to increase its efficiency. As well, a prominent U.S.-based activist investment firm, Pershing Square Capital Management, had acquired 14.2% of CP and was pushing for more changes. We thought that would further boost the company’s earnings and share price.
Despite a market downturn, CP’s stock is up 8.1% since our Successful Investor recommendation. We think it has further gains ahead.
The company’s shareholders have just voted in favour of Pershing Square’s proposals. As well, Pershing Square has now replaced seven of CP’s 16 directors with its own nominees. CP’s chairman, John Cleghorn, and chief executive officer, Fred Green, have also resigned.
Pershing will probably try to install Hunter Harrison, the successful former CEO of rival CN Rail, as CP’s new chief executive officer.
Even if CP hires someone other than Mr. Harrison, the company will continue to work on improving its efficiency by purchasing new locomotives, upgrading its tracks and streamlining its schedules.
CP Rail is still a buy for safetyconscious investors.
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