Bank of Nova Scotia is Canada’s most international bank with a focus on the Pacific Alliance countries.
In the past 10 years, the bank’s earnings-per-share growth versus its share count growth was pretty poor compared to its peers.
The stock has underperformed its peers but has outperformed the market.
Scotiabank’s dividend yield of 4.7% is safe, and you can expect stable dividend growth from the bank.
As the third-largest Canadian bank by market cap, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Scotiabank is often viewed as a blue-chip dividend growth stock. However, it may not be as great an investment as you think.
First, here’s an overview of the bank.
Business Overview of Bank of Nova Scotia
Scotiabank is Canada’s most international bank, but it still generates about half of its earnings from Canada. Its Canadian Banking segment is secure and generated the highest return on equity (“ROE”) of 22.7% in fiscal 2018 compared to the ROE of 14.4% and 16%, respectively, for its International Banking segment and its Global Banking and Markets segment. The overall ROE was decent at 14.9%.
The U.S. and Canadian stock markets have declined about 8% and 9%, respectively, from their 52-week highs. They’re spooked out from the Halloween month!
Let’s take a step back and be objective. The U.S. market is still about 29% higher than three years ago. The Canadian market? About 12% higher. From five years ago, the U.S. market is 52% higher and the Canadian market is 15% higher.
SPY data by YCharts. The 10-year price action of SPY and TSX:XIU
You get the big picture. The stock markets go up over the long term. Historically, it has always been money-making opportunities to buy quality companies on dips. And this dip is no different if you find great businesses to be attractively priced.
Here are some North American dividend-growth stocks that I find compelling today.
Undervalued Healthcare Stock
AbbVie (NYSE:ABBV) offers a safe 4.7%. Its payout ratio of less than 50% is sustainable.
Since AbbVie was spun off from Abbott Labs (NYSE:ABT) in 2013, it has increased its dividend every year thereafter. Its four-year dividend growth rate is 13.2%. Its trailing 12-month dividend per share is 40% higher than the previous 12 months.
The spooked market has brought AbbVie back into undervalued territory. At less than US$82 per share, it trades at a blended P/E of about 11. Analysts estimate the company will grow its earnings per share by at least 12% per year for the next three to five years. Read More