Scotiabank stocks: a financial planner’s guide

The Bank of Nova Scotia, commonly referred to and operating under the name Scotiabank, is a reputable bank that is one of the “Big Five” Canadian banks.  Scotia holds the distinction of being the third largest Canadian bank in terms of deposits and market capitalization.

Scotiabank has an estimated 25 million clients around the world and offers a wide range of products and services. This includes personal and commercial banking, corporate and investment banking, and wealth management services. According to a 2020 annual report, the bank has more than 92,000 employees and assets of $1.13 trillion. Its stock is traded on the Toronto (TSX: BNS) and New York (NYSE: BNS) stock exchanges.

Given its large network and substantial holdings, is it worth investing in Scotiabank stocks? In this article, Wealth Professional seeks to provide insight on this and other questions. What is the price of Scotiabank stocks in Canada? Is Scotiabank a good stock to buy? Read on to find out the answers.  

Indicators of a good bank stock

To know whether a bank stock is worth investing in, look at their indicators. These will reveal to investors whether a bank stock has good value and potential for more growth. According to the Ontario Securities Commission, these are the indicators to look at:  

Market Capitalization

This indicator refers to the total value of a company’s shares of stock. You can calculate this figure by multiplying the total outstanding shares by the stock price. This can show investors the relative size of a company against another of its peers.

Price-to-book value (P/B) ratio

This is the ratio of the company’s market cap to its book value. You can calculate this by dividing a company’s stock price per share by its book value per share.

A stock with a low P/B ratio is desirable to investors, as this indicates that they are paying less for more book value.

Price-to-earnings (P/E) ratio

This is the ratio of a company’s stock price to its earnings per share (EPS). You can calculate this by dividing the current price per share of a company’s stock by its EPS. This ratio shows if a company’s stock price is high or low relative to its earnings.

Dividend payout ratio (DPR)

This ratio shows how much a company pays out to investors in dividends compared to what the stock is earning. You can get this figure by dividing the annual dividends per share by the EPS. The DPR is an indicator of how well a company’s earnings support its dividend payments.

Dividend yield

This value shows how much a company pays out in dividends every year relative to its stock price. You can calculate the dividend yield by dividing the annual dividend per share by the price per share. The resulting value is the amount of money the stock pays out on every dollar invested in the stock.

Is Scotiabank a good bank stock to invest in?

To know whether Scotiabank stock is a viable investment, let’s look at their indicators as of this writing:

Scotiabank stock (Toronto Stock Exchange: BNS)

 As of now, Scotiabank’s stock price is at $63.87 per share.

P/B Ratio

In terms of price-to-book value ratio, if this value is below 1, then the company is undervalued. If this ratio is above 1, then this indicates that the stock is trading at a premium – with a P/B ratio of 1.10, Scotiabank stock is slightly overvalued.

Standards for good stock indicators can vary across industries. For instance, some investors will consider any P/B ratio under 3.0 to be good for a stock. But depending on the sector, it may not be unusual for the company to have a higher or lower P/B ratio.  

P/E ratio

With a P/E ratio of 10.82%, Scotiabank stock has a good to excellent P/E ratio. The average P/E ratio ranges from around 20 to 25. Any value below that would be considered a good price-to-earnings ratio, while a higher value would be considered bad.

Dividend payout ratio (DPR)

A good dividend payout ratio of 35% to 55%, or even lower than that range would be safe and sustainable. A DPR at these levels means that the company has enough earnings to reinvest in its growth and stay resilient in any economic slumps. In Scotiabank’s case, its DPR is 73.36%, so its DPR is not in a good place.

Dividend yield

Investors are cautioned not to base a stock’s viability on this measure of value alone. Even though a range of 2% to 6% means a good dividend yield, one that goes above 5%, should be thoroughly examined for sustainability. In Scotiabank’s case, its current dividend yield is at 6.64%. This means that although investors may enjoy high dividend yields, the sustainability of its dividends is questionable.

Apart from these indicators or metrics, it helps to keep an eye on industry news. In Scotia’s case, their management recently decided to shift their focus away from its Latin American operations.

This video details a recent announcement by Scotiabank’s CEO that they are streamlining operations to cut costs and place more focus on their US and Canadian operations. Such a move could increase their stock price, but only time will tell.

Scotiabank stock viability

Looking at the numbers, can we safely assume that Scotiabank is a viable investment?

The answer is not a definitive yes or no. Whether you should invest in Scotiabank stock depends on several factors like the recessionary headwinds that the Canadian economy might face and your personal financial circumstances. But given the available information, here’s a quick overview with some insight:

Scotiabank stock (Toronto Stock Exchange: BNS) performance as of late February 2024

The quick summary of Scotiabank stocks shows that they may not be an ideal investment at first glance. However, advisors whose clients have a moderate to aggressive risk appetite, a larger budget and a longer time horizon may not mind some of Scotia stock’s imperfections.

The key considerations for investing in stocks are:

• the investors’ investment approach
• risk tolerance
• financial objectives
• time horizon

With this information, deciding on investing in Scotiabank stocks can be a mixed bag. Some Wall Street analysts would consider BNS stock as a relatively cheap “practice stock” to start with. Other analysts would advise taking a pass on BNS stock and going after other better-performing Canadian bank stocks.

But what of investors who now have stock in Scotiabank? What are their options? Should they buy or sell, or hold onto their BNS stock?  At least one analyst advises to hold onto them, since Scotiabank’s high dividend yield still makes it a safe investment.

Are Scotiabank stocks right for your clients?

Clients who practice ESG investing should know that Scotiabank has sparked some controversy in recent months. Activists have pointed out that Scotiabank invested some US$500 million in a weapons manufacturer, Elbit Systems.

Some of Scotiabank’s mutual funds can include shares in Elbit, and its stock price may reflect some of the effects of this controversy. It remains to be seen, however, whether this will impact Scotiabank’s high ESG rating in 2024.

Investing in Canadian bank stocks is not without risk

When considering Canadian bank stocks, what are the businesses and/or business trends to monitor? First, look at Canada’s energy markets. The country is still heavily reliant on producing and trading fossil fuels.

Second, Canadian banks have significantly more exposure to mortgages than their US counterparts. The condition of Canada’s housing market, therefore, has a critical impact on their banks’ balance sheets. Stocks in Canadian banks are hardly a risk-free investment, but with their dividends, they can be good income-producing investments.

When and how much to invest in stocks of Canadian banks like Scotiabank also depend on economic conditions. Other factors come into play, too: the individual investor’s budget, risk tolerance, time horizon, and financial objectives. While it may not be the perfect time to invest in Scotiabank stock, its long heritage of expansion and resilience still make it a safe and viable investment.

For sound advice on investment strategies for Scotiabank and other bank stocks, visit our Best in Wealth section. You’ll find the best and brightest names in Canada’s financial industry who are deemed experts in the field.