We’ve long recommended that all Canadian investors own shares of two or more of the big-five Canadian banks. That’s mainly because of the banks’ importance to Canada’s economy.
However, each of the big five banks have different objectives, so they’re not all suitable for every investor.
Dividend paying stocks: Scotia is Canada’s most international bank
For example, Bank of Nova Scotia, Canada’s third-largest bank, is the most international of the big five banks. Unlike Royal Bank, TD and Bank of Montreal, it has avoided large investments in the U.S.
We’ve updated our buy/sell/hold advice on Bank of Nova Scotia in the latest issue of Canadian Wealth Advisor, our newsletter for conservative investing.
The bank prefers to focus on developing regions, such as the Caribbean, Latin America and Asia. That’s because it believes rising prosperity in these areas will spur greater demand for banking services.
International division made a big contribution to Scotia’s latest earnings
Bank of Nova Scotia cuts its risk by investing mainly in overseas banks that are established, and can benefit from its expertise. The international division now supplies 22% of the bank’s total earnings.
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The bank reported higher earnings in the latest quarter. That’s mainly because it is putting less money aside to cover bad loans because of the improving economy. However, its international division also made a big contribution. During the quarter, the international division’s earnings jumped 61.5%, thanks to strong demand for business loans in Asia and Latin America.
This dividend paying stock’s payout is on the rise
Scotiabank has been a dividend paying stock since 1892. Like all of the big banks, it has a long history of raising its dividend. However, rising loan losses and writedowns of illiquid securities stemming from the financial crisis prompted all five big banks to conserve cash in the last couple of years, instead of raising their dividends.
As well, banking regulators around the world have proposed new regulations aimed at avoiding another crisis. The new rules will force banks to increase their capital reserves, which would help them better absorb future loan losses. Canada’s banks should have no trouble adapting to the new rules.
In the first quarter of 2011, Scotia became the second of the big five banks to resume dividend increases, after TD Bank. The dividend paying stock’s quarterly payout increased by 6.1%, to $0.52 a share from $0.49. The new annual rate of $2.08 yields 3.6%.
Scotia has joined the Maple Group bid for TMX Group
Bank of Nova Scotia recently joined a new consortium called Maple Group Acquisition Corp. Other members include CIBC, TD Bank, National Bank and five major pension funds.
Maple wants to buy a controlling interest in TMX Group (symbol X on Toronto), which operates the Toronto Stock Exchange. TMX has already accepted a takeover offer from the London Stock Exchange.
Under Maple’s bid, TMX would merge with Alpha Group (a rival exchange formed by Canadian banks and brokerage firms in 2007) and the Canadian Depository for Securities, which processes stock and bond trades. TMX shareholders would own 40% of the new company, the pension funds would own 35% and the banks would own 25%.
We’ll keep you updated on the Maple bid—and what it means for your portfolio
We’ll have more to say about Bank of Nova Scotia’s involvement in Maple—and how you should respond—as details become available. You can follow our advice in Canadian Wealth Advisor.
Meanwhile, you can get the latest issue of Canadian Wealth Advisor at no cost when you take a 1-month FREE trial today. This issue includes our detailed analysis and clear buy/sell/hold advice on Bank of Nova Scotia and 20 other investments that may be suitable for your portfolio.
Our analysis contains all the information you need to decide whether Bank of Nova Scotia is appropriate for your portfolio. Our recommendation is based on all of the bank’s fundamentals, including a detailed look at its latest earnings, as well as our view of its future prospects, including our outlook for its expanding international division.
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