Best Canadian Stocks: How we pick a best buy in Canadian banks

Stock Investing

Every Tuesday we bring you “Best Canadian Stocks.” You get our specific recommendations on the stocks we profile, with a full explanation of how we arrived at our opinion. You’ll read about stocks making moves you should know about, from coverage  in one of our three newsletters featuring Canadian stocks—The Successful Investor, Stock Pickers Digest and Canadian Wealth Advisor.

Bank of Nova Scotia is one of our top picks among Canada’s big five banks right now, due to its wide international exposure.

We believe Canada’s big banks are still well positioned to weather any downturn in the Canadian economy, contrary to pessimistic forecasts on the banks’ prospects from some in the business media. They trade at attractive multiples to earnings and continue to raise their dividends.

BANK OF NOVA SCOTIA (Toronto symbol BNS; www.scotiabank.com) reported that its earnings rose 2.6% in the quarter ended January 31, 2015, to $1.65 billion from $1.61 billion a year earlier. Per-share profits gained 2.3%, to $1.35 from $1.32, on more shares outstanding. Revenue rose 3.9%, to $5.9 billion from $5.6 billion.

Earnings at the Canadian banking division (which supplies 50% of total earnings) fell 1.7%, mainly because the bank sold most of its shares in mutual fund provider CI Financial (Toronto symbol CIX) in 2014.

Excluding CI and adjusting for changing tax rates, this division’s earnings rose 6% due to steady loan and deposit growth. Higher stock markets also increased the value of the assets its wealth management business administers.


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Dividend stocks: 3.0% dividend hike produces a yield of 4.3%

The international division (25% of total earnings) saw its profits fall 1.9% on higher loan-loss provisions in Colombia and negative foreign exchange rates. However, earnings at the securities trading business (25%) rose 4.1% on higher stock and foreign exchange trading volumes.

Bank of Nova Scotia set aside $463 million to cover potential bad loans in the latest quarter, up 30.1% from $356 million a year earlier. That’s mainly because it’s loaning more funds to consumers in Canada and Latin America.

The bank also increased its dividend by 3.0%. The new annual rate of $2.72 a share yields 4.3%. The stock trades at 11.2 times the bank’s projected 2015 earnings of $5.65 a share.

Recommendation in The Successful Investor: buy.  

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