Monday, March 31, 2014

Dividend Growth Investment Bank Of Nova Scotia

As mentioned on my previous post I am constantly on the prowl for opportunities to purchase companies offering great value based on the price. As the beginning of a new month begins I usually close-down on the most promising ones and in the end narrow it down to one. 

My buy for April is Bank of Nova Scotia (BNS). I was also very interested in AT&T (T) and General Mills (GIS), but they both soared right before I got the capital to deploy, so that ended up making it easier to Bank of Nova Scotia.

Banking is a key industry that I wanted to own, but I have to confess that they still make me a bit nervous. Not just because of 2008, but as any one who reads the news, the big banks like JP Morgan (JPM) are constantly involved in all kinds of lawsuits and bad press.

This is where Bank of Nova Scotia comes in. The Canadian banking system is very stable, they have strict safety regulations and are highly supported by the government and surprisingly by the general population of Canada (probably because so many have their pensions invested in those banks). 

Due to their stability and high-dividends they are usually in high demand. However, at the moment there is fear that there is a mortgage crisis brewing in Canada, which would hit the Canadian banks very hard, resulting in much lower valuations. 

I am no oracle and I do not feel confident enough making predictions on whether the housing market will crash or not. This is precisely the main reason why I am choosing BNS over its peers, namely Bank of Montreal (BMO). Bank of Nova Scotia is the bank with most international diversification, with only 35% of their income coming from Canadian business. On top of that, they are well positioned to profit from population and purchase power growth in emerging markets.





From a general perspective, based on history and annual reports, they clearly put shareholders at the core of their activity and seem conservative in their operations to guarantee stable and reliable returns. In terms of fundamentals, they look very good, they have a very healthy debt for a bank, a low payout ratio and a very balanced return-on-equity (ROE).

Stock Price: 58.13$
Dividend Yield: 4.0%
Dividend Raise Streak: 15 Years
Typical Yearly Dividend Growth (5yr): 5% 

8 comments:

  1. Hi DV,

    It looks like you've made a very sound investment there well done. 4-5% yield and 15 consecutive years of dividend growth, thank you very much! :-)

    I hope the returns continue to do well for you now that you're a shareholder. All the best!

    Huw

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    Replies
    1. Hey Huw,

      Thank you. I am very happy indeed with this purchase. As a fellow UK-based investor I must tell you that there might be a catch on this one. Because BNS is a Canadian company traded as an ADR, the withholding tax will happen in Canada, which by default is 25%. My broker currently does not support filling the form to reduce tax withholding in Canada. So if you go for any of the Canadian banks take this in mind.

      All the best,
      DividendVenture

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    2. Hi DV,

      Thank you for the heads up, I appreciate that!

      Congrat's again on the buy.

      Thanks
      Huw

      Delete
  2. Hi DV,

    Good investment, luckly I catched this fish when it was at $53. I will add more units when I have some money to invest.

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    Replies
    1. Hi S arun,

      Thanks. I find that under 60 is a great price for BNS, even very low 60's, but 53 is a wonderful price, congratulations on that catch!

      I see that you have a good portfolio of canadian stocks, any stock you recommend from Canada apart from BNS?

      Best,
      DividendVenture

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  3. Hi DV

    May I ask who you buy your US shares through, and how they deal with currency exchange etc.

    I would like to buy some US stock, but can't seem to find the best way to do this.

    Hope you don't mind me asking, and that you can help.

    Thanks

    FIUK

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    Replies
    1. Hello FIUK,

      I feel that pain, I got to say that at first it really bothered me how it is so hard to buy US stocks in the UK. It's certainly easier than in most countries, but they charge you a lot of commission and currency exchange. The best broker I found from this is I-Web Sharedealing from Halifax, they don't charge a commission for holding your stocks and charge the 5 pounds for both UK and US stock purchases. Regarding the currency exchange, they have all your holdings in pounds and charge an extra 1.5% fee for a buy in a different currency. So US stocks cost 5 GBP + 1.5%, while UK stocks cost 5 GBP.

      A decent broker for this I believe was TD Direct if I recall correctly, even though they charge you an yearly commission, so it might be worth looking at pros/cons

      Hope this helps!

      Delete
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    ReplyDelete