Is it a good company at a reasonable price? The stock price could be reasonable, but it also could be on the expensive side. It certainly is not cheap. I like all Canadian Banks. However, I do not think this one has done as well over time as other Canadian Banks. It has however a good history of dividends and dividend increases.
When I look at analysts’ recommendations, I find Strong Buy (5), Buy (5) and Hold (3). The consensus would be a Buy. The 12 month stock price consensus is $94.15. This implies a total return of 5.53% with 1.23% from capital gains and 4.30% from dividends.
The range for the 12 month price consensus is $104.00 to $84. With the top range you would expect a total return of 16.13% with 11.83% from capital gain and 4.30% from dividends. With the $84 price, you would expect a loss of 5.38%, with a capital loss of 9.68% and dividends of 4.30%.
When I look at analysts’ recommendations last year, I found 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%, based on a stock price of $70.20. What happened was a rise of the stock price to $93.00 with a total return of 37.61% with 32.48% from capital gains and 5.13% from dividends. Last year I said that the stock price was cheap to reasonable.
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. Besides, my son owns shares in this bank. This company has a financial year ending at October 31 each year.
When I was updating my spreadsheet, I noticed that last year analysts expected the EPS to be up 14% to 6.03, but EPS is up 45% to $7.70.
I have two calculations on investing at around $1,000 and what would stock be worth today:
- If you had invested in BNS in December 1995, $1,004.40 you would have bought 135 Shares. In December 2021, after 25 years you would have received $6,415.88 in dividends. The stock would be worth $9,477.00. Your total return would have been $15,892.88.
- If you had invested in BNS in December 1988, $1,001.81 you would have bought 274 Shares. In December 2021, after 32 years you would have received $13,532.18 in dividends. The stock would be worth $19,234.80. Your total return would have been $32,766.98.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $7.44 | $1,000.40 | 135 | 25 | $6,415.88 | $9,477.00 | $15,892.88 |
| $3.66 | $1,001.81 | 274 | 32 | $13,532.18 | $19,234.80 | $32,766.98 |
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.30%. The 5, 10 and historical dividend yields are also moderate at 4.88%, 4.37% and 4.17%. The dividend growth is currently low with growth over the past 5 years at 4.56% per year. The last dividend increase occurred in the financial year of 2022 and it was for 11.1%. This is after no increases in the financial years of 2020 and 2021.
The Dividend Payout Ratios (DPR) are fine as Cash Flow is not considered important for banks. The DPR for EPS for 2021 is 47% with 5 year coverage at 52%. The DPR for Cash Flow per Share is non-calculable for 2021 because of negative Cash Flow. The 5 year coverage is 31%. The DPR for Free Cash Flow and going with FCF from Wall Street Journal, the DPR for FCF for 2021 is 26% with 5 year coverage at 35%. Morningstar site says the FCF is negative for 2021.
Debt Ratios are fine. Because this is a bank, I am looking at the Debt/Covering Assets Ratio which for 2021 is 0.67. This is a good ratio. The debt ratio is 1.07 and this is fine for a bank.
The Total Return per year is shown below for years of 5 to 36 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 7.85% | 7.90% | 3.68% | 4.23% |
| 2011 | 10 | 6.53% | 10.30% | 5.83% | 4.47% |
| 2006 | 15 | 10.50% | 7.44% | 3.68% | 3.77% |
| 2001 | 20 | 10.25% | 11.19% | 6.70% | 4.49% |
| 1996 | 25 | 10.25% | 13.45% | 8.57% | 4.88% |
| 1991 | 30 | 10.25% | 15.20% | 9.81% | 5.39% |
| 1986 | 35 | 10.25% | 13.72% | 9.05% | 4.66% |
| 1985 | 36 | 10.25% | 14.31% | 9.37% | 4.94% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 8.82, 10.71 and 12.44. The corresponding 10 year ratios are 9.59, 11.03 and 12.47. The corresponding historical ratios are 10.29, 11.23 and 13.20. The current P/E Ratio is 11.25 based on a stock price of $93.00 and EPS estimate for 2022 of 8.27. The current P/E Ratio is between the median and high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $99.57. The 10 year low, median, and high median Price/Graham Price Ratios are 0.76, 0.85 and 0.97. The current P/GP Ratio is 0.93 based on a stock price of $93.00. The current ratio is between the median and high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.59. The current P/B Ratio is 1.75 based on a Book Value $64,750M, Book Value per Share of $53.28 and a stock price of $93.00. The current ratio is 10% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
There are analysts estimate for the Book Value per Share for 2022. That estimate is a Book Value per Share of $57.80, Book Value of $70,247M. With a stock price of $93.00, you get a P/B Ratio of 1.61. This ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I cannot do a Price/Cash Flow per Share Ratio test as the Cash Flow for 2021 was negative and there are no estimates for 2022.
I get an historical median dividend yield of 4.17%. The current dividend yield is 4.30% based on dividends of $4.00 and a stock price of $93.00. The current dividend yield is 3% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 4.73%. The current dividend yield is 4.30% based on dividends of $4.00 and a stock price of $93.00. The current dividend yield is 2% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 3.08. The current P/S Ratio is 3.50 based on Revenue estimate for 2022 of $32,307M, Revenue per Share of $26.58 and a stock price of $93.00. The current P/S Ratio is 14% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is probably reasonable. It is not cheap. The dividend testing put the price as reasonable and above and below the median. The P/S Ratio test says the stock price is reasonable, but above the median. All the other tests say the price is reasonable and above the median.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below, it would seem that the current P/S Ratio is high for good future returns. The P/E and dividend yield would seem to be at a reasonable level
In the following chart the capital gains for the 10 years to December 31, 2021 is 5.83% per year. The beginning yield was at 3.90%, and the P/E Ratio and the P/S Ratio were at 11.00 and 3.52. Does this chart change my opinion of the stock price? You have to worry about the rather high P/S Ratio.
| # Years | Cap Gains | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 3.68% | 12.96 | 3.30 | 4.00% |
| 10 | 5.83% | 11.00 | 3.52 | 3.90% |
| 15 | 3.68% | 14.68 | 4.51 | 2.99% |
| 20 | 6.70% | 12.09 | 2.50 | 2.83% |
| 25 | 8.57% | 11.24 | 2.01 | 3.08% |
| 30 | 9.81% | 7.70 | 1.31 | 5.06% |
| 35 | 9.37% | 4.21% | ||
| 36 | 9.37% | 5.04% | ||
| current | 11.25 | 3.50 | 4.30% |
Analysts on Stock Chase seem to like this bank although they admit it has been lagging other Canadian banks. Jed Lloren on Motley Fool says his top choice for a Canadian bank is BNS. Christopher Liew on Motley Fool likes this bank for consistency of its dividends. BNS reports on their fourth quarterly results on Cision. A Simply Wall Street report on Yahoo Finance talks about insider buying at this bank.
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 Wednesday, January 19, 2022 around 5 pm. Tomorrow on my other blog I will write about Best Canadian Banks.... learn more on Tuesday, January 18, 2022 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.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
No comments:
Post a Comment