I do not own this stock of Bank of Nova Scotia (TSX-BNS, NYSE-BNS). This is one of the big banks of Canada. All our big banks are dividend growth companies. I do not own this bank but my son owns shares.
When I was updating my spreadsheet, I noticed that like other banks, I looked at what you would have you invested in this bank over a period of time. The first one is a 35 year investment for $1,000. In December 2020 you would have received $13, 004.83 in Dividends and the value of the shares would be $19,312.16. If you made an $1,000 investment 25 years ago, by December 2020, you would have received $5.903.52 in dividends and your shares would be worth $9,246.72.
The dividend yields are good with dividend growth low. The current dividend yield is good (5% to 6% ranges) at 5.13%. The 5, 10 and historical dividend yields are moderate (2% to 4% ranges) at 4.63%, 4.22% and $4.15%. The dividend growth over the past 5 years is low (below 8%) at 5.77% per year. The last dividend increase was in 2019 and it was for 3.4%. This was the second increase for 2019. The first increase was for 2.4%. There were no increases in 2020, total dividends increased by 3.15% from 2019 because the last increase was done late in the year.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 was 68% with 5 year coverage at 52%. The DPR for CFPS for 2020 was 8% with 5 year coverage at 24%. The sites l looked at for Free Cash Flow do not agree. WSJ says the DPR or FCF for 2020 was 22% with 5 year coverage 37%.
Debt Ratios are fine. Because this is a bank, I am looking at the Long Term Debt/Covering Assets Ratio which is fine at 0.93. The Liquidity Ratio does not matter for banks. The Debt Ratio for 2020 is 1.07. For banks, any ratio at 1.04 or higher is fine.
The Total Return per year is shown below for years of 5 to 35 to the end of 2020. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 5.77% | 9.55% | 4.21% | 5.34% |
| 2010 | 10 | 6.27% | 6.32% | 1.88% | 4.44% |
| 2005 | 15 | 6.92% | 6.96% | 2.70% | 4.26% |
| 2000 | 20 | 10.37% | 10.88% | 5.96% | 4.92% |
| 1995 | 25 | 10.27% | 15.53% | 9.31% | 6.22% |
| 1990 | 30 | 9.30% | 18.49% | 10.89% | 7.59% |
| 1985 | 35 | 9.11% | 14.10% | 8.83% | 5.27% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 9.02, 10.77 and 12.52. The corresponding 10 year ratios are 10.07, 11.30 and 12.51. The corresponding historical year ratios are 10.29, 11.29 and 13.20. The current P/E Ratio is 11.64 based on a stock price of $70.20 and EPS estimate for 2021 of $6.03. This stock price testing suggests that the stock price is relatively reasonable but above the median.
If you look at P/E Ratios compared to Total Returns for the 5, 10, 15, 20, 25, and 30 year periods, I find the following. For example, total return over the past 15 years is 6.96% per year, the starting P/E Ratio (the one from 15 years ago) was 16.65. From this chart’s point of view, a P/E Ratio of 11.64 would be fine.
| Year | Tot Return | Start P/E |
|---|---|---|
| 5 | 9.55% | 9.87 |
| 10 | 6.32% | 14.60 |
| 15 | 6.96% | 16.65 |
| 20 | 10.88% | 9.32 |
| 25 | 15.53% | 11.54 |
| 30 | 18.49% | 11.54 |
I get a Graham Price of 83.88. The 10 year low, median, and high median Price/Graham Price Ratios are 0.80, 0.88 and 0.98. The current P/GP Ratio 0.84 based on a stock price of $70.20. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.70. The current P/B Ratio is 1.35 based on a stock price of $70.20, a Book Value of $62819M, and Book Value per Share of $31.85. The current P/B Ratio is 20% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Cash Flow per Share Ratio of 6.48. The current P/CF Ratio is 8.78 based on a stock price of $70.20, Cash Flow per Share estimate of $8.00, and Cash Flow of $9,692M. The current ratio is 35% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. However, the problem with cash flow and banks is that cash flow is all over the place, so in this case I do not place much reliance on it.
I get an historical median dividend yield of 4.15%. The current dividend yield is 5.13% based on a stock price of $70.20 and dividends of $3.60. The current dividend yield is 24% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median dividend yield of 4.22%. The current dividend yield is 5.13% based on a stock price of $70.20 and dividends of $3.60. The current dividend yield is 22% above the 10 year dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 3.22. The current P/S Ratio is 2.81 based on Revenue estimate of $30,269 for 2021, Revenue per Share of $24.99 and a stock price of $70.20. The current ratio is 13% below the 10 year median ratio. This stock price testing suggests that the stock price is reasonable and below the median
Results of stock price testing is that the stock price is cheap to reasonable. Both the dividend yield tests show this stock price as relatively cheap, but it is not confirmed by the P/S Ratio test which is showing the price as reasonable. The other goods tests are the P/GP Ratio and P/B Ratio tests and these also point to cheap to reasonable.
Is it a good company at a reasonable price? I think the stock price is cheap to reasonable. It is a good dividend growth Canadian bank, so I think it is a good company to buy for its dividend. I think all Canadian dividend investors should have a couple of Canadian Banks in their portfolios.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (6), Hold (4) and Underperform (3). The consensus would be a Buy. The 12 months stock price is $69.25. This implies a total return of 3.77% with a capital loss of 1.35% and dividends of 5.13%.
Most recent analysts’ comments for this bank on Stock Chase are buy or top pick. Nicholas Dobroruka on Motley Fool says Canadian Value stocks are on sale. His picks are BNS and Sun Life. The Executive Summary for Simply Wall Street lists 3 rewards and no risks for this bank. It is given 4 stars out of 5. A writer on Simply Wall Street is unenthusiastic about BNS as a dividend stock because of low earnings growth. Financial Nirvana Mama reviews this bank on YouTube.
Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking, and markets, and other. The bank's international operations span numerous countries and are more concentrated in Central and South America. Its web site is here Bank of Nova Scotia.
The last stock I wrote about was about was Toronto Dominion Bank (TSX-TD, NYSE-TD) ... learn more. The next stock I will write about will be National Bank of Canada (TSX-NA, OTC-NTIOF) ... learn more on Monday, January 18, 2021 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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