Recent Buy

buyIt feels really great to be in a position to continue to put fresh capital to work!

Stocks across the board aren’t cheap, but I’m fortunate in that, as a dividend growth investor, I’m only buying one stock at a time. Thus, I only need to find one attractively valued stock at a time. Much easier than buying the market, which might involve buying hundreds, or even thousands, of stocks at once.

As always, I look at the stock market like any other market or store. It offers a plethora of merchandise, some expensive, some not so expensive. I tend to shop in the back of the store, where one can find the clearance specials.

Furthermore, “expensive stocks” is very much a first world problem. If you’re in a position to even save money and buy stocks on a regular basis, you’re really extremely blessed.

As such, I’m blessed to note that I recently picked up shares in another world-class business.

I purchased 15 shares of Bank of Nova Scotia (BNS) on 3/10/15 for $49.51 per share.

Overview

Bank of Nova Scotia is a diversified financial services institution based in Canada that offers a range of financial products and services to retail, commercial, and corporate customers. These customers number more than 21 million across over 55 countries.

They are Canada’s most international bank with more than 2,000 international branches and offices and more than 1,100 branches and offices in Canada.

The bank operates in four segments: Canadian Banking (31% of fiscal year 2014 net income), Global Wealth & Insurance (26%), International Banking (21%), and Global Banking & Markets (21%).

56% of the company’s income comes from Canadian operations. The rest is from US and international operations.

Fundamentals

BNS actually has some really solid fundamentals, especially in comparison to some of the larger US financial institutions. This appears to be due to a variety of factors, ranging from regulation in Canada to the Canadian economy. But I also think it comes down to prudent management.

So let’s take a look at what kind of growth the company has managed across the top and bottom lines over the last 10 fiscal years.

Revenue was $10.726 billion CAD in fiscal year 2005, which increased to $23.958 billion CAD in FY 2014. That’s a compound annual growth rate of 9.34%, which is especially impressive considering this stretch includes the financial crisis.

Earnings per share increased from $3.15 CAD to $5.66 CAD over this period, which is a CAGR of 6.73%. Again, this is admirable considering the period we’re talking about.

S&P Capital IQ anticipates that EPS will compound at a 5% annual rate over the next three years

Now, where the bank really shines is in their dividend history, which is one of the richest and longest around.

First, they’ve been paying a dividend since 1833. Let that sink in for a second.

The dividend growth record, however, isn’t very lengthy due to the fact that management decided to prudently maintain the payout throughout the financial crisis. However, this is obviously preferable to a dividend cut or outright elimination. That said, they’ve been increasing the dividend since, with five consecutive years of dividend increases.

And the five-year dividend growth rate stands at 7.9%. That’s pretty strong considering the current yield of 4.36%. Generally speaking, the sum of the yield and dividend growth rate is a proxy for long-term total return, assuming a static valuation. Add the two up and you get a sum north of 12, which is attractive. Furthermore, the bank has been increasing its dividend twice per year lately, with the most recent dividend increase announced just earlier this month, upping the quarterly dividend from $0.66 CAD to $0.68 CAD, or 3%.

The payout ratio is 47.8%, which isn’t only low in absolute terms, but also fairly low for a stock that yields north of 4%. It’s not common that you find a high-quality stock yielding 4%+ with a payout ratio below 50%.

BNS’s balance sheet is also solid, and a further indication of their quality. The long-term debt/equity ratio is 0.21. And their credit ratings, which can affect the company’s access to capital markets and borrowing costs/terms, are strong: They have an A+ rating from Standard & Poors and a Aa2 by Moody’s.

The company’s profitability compares well with any of the major Canadian banks, with return on equity that’s averaged 18.62% over the last five years.

Assets have grown from $314.025 billion CAD to $805.666 CAD over the last 10 years, which is a CAGR of 11.04%.

Qualitative Aspects

Canadian banks operate under a basic oligopoly structure, with BNS operating as one of the “Big Six” banks in Canada. These banks collectively control approximately 90% of the country’s banking assets. This allows a healthy competitive environment where products and services can be marketed at a reasonable premium.

The domestic Canadian banking sector is particularly attractive for investors since the big banks already in existence will probably remain the major players for the foreseeable future due to strong regulation that limits foreign competition.

But what I really like about this bank in particular is their healthy international exposure. As pointed out above, almost half of the company’s income comes from international operations. Their Latin America exposure is particularly promising, where the bank continues to see strong loan growth. This geographical diversification helps cushion the bank from any major domestic issues, which is important considering that Canada’s economy is somewhat commodity based with a housing market that is potentially in a bubble.

Larger banks tend to stay larger – and grow – due to the sticky nature of their business. Once someone is banking with a particular company, it’s somewhat unlikely that they’ll switch bankers as long as the respective bank is providing product and services at a level that customers expect. Furthermore, there are only so many institutions – especially in Canada – that can provide the size and quality of loans that commercial and corporate customers need.

Risks

There are concerns about household consumer debt in Canada, which recent reports have cited as the highest in recent history. This appears primarily due to the housing market which has been on an incredible run, though there are some concerns that the Canadian housing market displays some similar qualities to the US housing market before the housing crash that became part of the financial crisis. The national average sales price of housing in Canada, which includes all housing types, is $431,812 as recently as February.

Any major problem with housing could impact BNS since almost half of their loan portfolio is related to residential mortgages. However, Canada’s current situation is different from what the US experienced during the housing crash in a number of ways, such as the lack of high-volume subprime lending, higher down payment requirements, and the fact that the vast majority of mortgages are non-recourse. Though, because mortgages are commonly variable rate, any rise in rates could constrain borrowers’ ability to pay.

The stock has taken a beating over the last six months – US shares are down some 25% over that period – due apparently in some part to worries over the slowdown in the oil & gas industry and how that will affect BNS’s loan portfolio. It’s important to keep in mind, however, that O&G accounts for approximately just 3% of BNS’s loan portfolio. Though, there could be an effect there where unemployment affects other parts of BNS’s business lines.

Valuation

The stock’s P/E ratio of 11.12 is low not only in absolute terms, but also relative to the broader market and BNS’s five-year average of 12.3. The stock has slowly seen a P/E ratio compression over the last few years, but this really can’t continue much further, meaning an expansion of the ratio is more likely when looking out over the long term. The current yield is also high by recent historical measures.

I valued shares using a dividend discount model analysis with a 10% discount rate and a 6.5% long-term growth rate. This rate appears fair considering the company’s recent historical growth in EPS and the dividend, as well as the moderate payout ratio. Short-term headwinds could cause slower growth, but I think this is an appropriate growth rate when looking out over the long haul. And the payout ratio should cushion any temporary slowdowns, though any major crash in the domestic housing market could cause major issues. The DDM analysis gives me a fair value of $65.73.

Overall, shares appear attractively valued here, which is why I added to my position for the first time since initiating a stake in BNS back in February 2013. The recent weakness across Canadian bank stocks gave me an excellent opportunity to average down. I also want to note that this transaction is much smaller than usual due to the fact that I had some free trades with my brokerage, Scottrade. A reader kindly used a referral code upon opening a new account to give us both a few free trades. I’m not working with as much capital as I used to, but I had a chance here to put a little capital to work and keep the snowball rolling.

Conclusion

It’s just not often you find a company that’s been paying out a dividend for almost two centuries. In addition, it’s rare to find a high yield, low valuation, and moderate payout ratio all at the same time like this. Generally, stocks with 4%+ yields have higher payout ratios, but that’s not the case here with BNS. And the yield is still high even after factoring in the recent strong USD performance. When this moderates itself and the exchange rate between the USD and CAD returns to normal, the actual income provided by these shares will actually increase. So I view this almost like a high-yield stock that actually flies under the radar as a stock that yields even higher over the long run.

While the risks here should be taken seriously, Canada’s economy has remained resilient over the long term, with the most recent financial crisis being a fairly good test. I think there’s a good chance that growth moving forward could be somewhat lower than what we’ve seen over the recent past, but I still think that an attractive valuation, yield north of 4%, moderate payout ratio, and entrenched business model in an oligopoly warrants attention.

This purchase adds $32.40 to my annual dividend income, based on the current $0.54 quarterly dividend. That factors in the current exchange rate of $1 CAD to $0.78 USD.

I’m going to include two current analysts’ valuation opinions below, as I use these to concentrate my reasonable valuation estimate:

Morningstar rates BNS as a 3/5 star value, with a fair value estimate of $55.00.

S&P Capital IQ rates BNS as a 4/5 star Buy, with a fair value calculation of $59.10.

I’ll update my Freedom Fund in early April to reflect this recent purchase.

Full Disclosure: Long BNS.

What’s your opinion of BNS here? Think the valuation is attractive? Is it a good buy? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Note: Scottrade link is an affiliate link. 

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108 Comments

  1. Jason,

    It seems BNS is making rounds in the dividend growth community the past few weeks… I see it popping up on almost every North-American DGI blog I read. After reading your and Ryan from MyDividendGrowth’s analysis I can see why that is.

    Even though there’s a small loan risk, I don’t think that warrants the ridiculously low price and high yield BNS is now trading at, especially when considering that its payout ratio is under 50%. To top things off there’s the excellent DGR from the past five years.

    If I wasn’t looking at European stocks for the next coming months (due to the strongly devalued Euro), I know where I’d put my money. Great purchase!

    Also, I’m glad to see you continue to invest even though you have the tax bill coming up soon.

    Best wishes,
    NMW

  2. Another buy! Great to see you continuing on your path 🙂 It looks like another solid investment to your already-strong portfolio.

  3. Hey Superstar DM,

    Great minds think alike! I also purchased some BNS last week. (http://www.monsieurdividende.com/2015/03/recent-stock-purchase_48.html?spref=tw)

    It’s a small buy, mind you. Like you I only bought 15 and my total amount of shares is now 40. It’s not a lot but I am pretty sure I will buy some more in the future.

    My strategy is to mostly buy stocks I already own (17). I buy when there’s a price fallout of at least 10% compare to they stock’s highest price of the year.

    I don’t intend of owning much more than 20 stocks, so its imperative I move when there’s opportunity like that.

    I read the other day that you have great income from visitors. That, too, is impressive. I now have 3$ waiting for me at Adsense! (lol)

    Again, great buy and great journey! All the best.

    Monsieur Dividende

  4. NMW,

    It looks like it is somewhat popular right now. I picked up shares toward the early part of last week, but didn’t really get a chance to write about it until now. But there are really only so many high-quality stocks out there that also have an appealing valuation and yield. And BNS seems to fit the bill there.

    There’s definitely loan risk, but the company’s market cap has been cut by about 25% over the last six months. Is the company going to lose 1/4 of its loans? Doubtful. But that’s why I love jumping on opportunities like this. 🙂

    Appreciate all the support. I’m lucky in that I’ve been able to continue buying stocks. That’s really only because I sold my car. Without that, I would have had to probably take a break from stock purchases for the first couple of months.

    Keep up the great work over there!

    Best wishes.

  5. Great analysis Jason! I ask because I don’t know, but are there any tax implications for receiving foreign dividends?

  6. Freddy M,

    I discussed that a little bit here:

    https://www.dividendmantra.com/2014/11/considering-foreign-domiciled-dividend-growth-stocks/

    Specifically to BNS, if you own it in a taxable account you’ll receive your dividend less 15% and get the 15% back later as a tax credit. So you still collect 100% of the dividend in the end. If you own it in a tax-advantaged account, you’ll collect the whole dividend upfront.

    I’d recommend some reading on foreign stocks as it relates to dividend taxation as it’s a pretty complicated subject, especially if you start to stray away from some core countries.

    Take care!

  7. Dividend Mantra,

    In Canada, on the TSX is like $62.45. That is good up here in Canada and something I am keeping my eye on. The Canadian banks are great companies to own, as you dicussed in your post. I currently own 3 of them. If the price up here was $49.51 per share right now I would be all over it buying as much as I can.

    I owned BNS for a few years now that is set up as a full drip, as I own the stock directly through the transfer agent. This method of ownership is the old way of buying stocks.

  8. Congrats to us to own such a great company. BNS is a truly strong company that has been and will benefit its shareholders for a long time.

    Cheers,

    BSR

  9. IP,

    Yeah, the exchange rate affects the price of the stock on our market. You get the cheaper stock, but you also get the (probably temporarily) reduced dividend. Either way, it seems like an opportunity to me when looking at the valuation and yield. I don’t think BNS is a steal here, but I do think it’s a quality stock trading for an attractive price. A 5.5% growth rate would mean it’s roughly fair, but I think they’ll grow faster over the long haul.

    Glad to be a fellow shareholder here. I honestly don’t think we’ll go wrong. And that dividend certainly helps the cause! 🙂

    Take care.

  10. BSR,

    It’s been one of my worst holdings in terms of total returns over the last couple years (due mostly to recent volatility), but I’m more than happy to use that as a long-term opportunity. 🙂

    We’ll see how it goes, but I think they’ll do well over the long haul!

    Thanks for stopping by.

    Best regards.

  11. DM,

    Nice pickup on BNS. The strong USD can’t last forever so at some point you will have a nice fx tailwind in that respect. Also, that history of dividends is almost scary at 182 years. Keep up the great work adding to your Freedom Fund one purchase at a time.

    FD

  12. Hi Jason,

    Seems like a really solid buy. Very nice yield, dividend growth rate and a low payout ratio. Too bad I don’t have any money to invest right now, next buy for me is after 2-3 months. But it gives me time to think about my next move, so I guess there is an upside also 🙂 Thanks for sharing and keep up the great work!

  13. FD,

    Almost 200 years of dividend history. Tough to beat that. 🙂

    Thanks for the support. Much appreciated. And keep up the great work over there with all the investments. You’re rolling that snowball at an aggressive rate!

    Best regards.

  14. Sampo,

    Nothing wrong with that. You have an opportunity to take your time there and make sure that whatever you buy next really fits your portfolio. I hope there are plenty of opportunities out there when your capital is replenished 🙂

    Thanks for dropping by!

    Take care.

  15. Great company, great analysis, and a great buy Jason.

    Just wondering, will you be branching out to buy some UK stocks, since the $ is so high against the £ right now? And also against the €? Dividend Life and No More Waffles respectively maintain lists of the UK and Euro Dividend Champions (or their nearest equivalents).

    Clearly, the Canadian banks are a wonderful choice at the moment, and it’s easy for Americans to invest in Canadian stocks, but I just wondered if you were going to take advantage of the current forex situations.

    Cheers

  16. Long time reader – first comment.

    I actually decided to increase my position in BNS earlier today, and will properly buy tomorrow – Funny coincidence.

    I have been searching for more interesting Canadian DG stocks, but so far only the banks seems interesting.

    Do you have other Canadians stocks on your short list?

    Best regards from Denmark!

  17. Two purchases in two weeks! Fantastic. Keep adding the capital to your portfolio and keep watching the dividends roll in.

    I have been seeing a lot of dividend investors buying up the Canadian banks but I have yet to take the jump into that category. I have never taken the time to really research any banks let alone Canadian banks but with so many investors picking them up right now, I might have to seriously consider an investment myself.

    Congrats on the latest investment, hope it works out well for you and all the others.

    ADD

  18. M,

    Thanks! Appreciate the compliments. 🙂

    My portfolio already has pretty good exposure to the UK stock market, so I’m not in a big rush to go crazy there. Furthermore, some of the high-quality stuff over there, like Unilever, was cheaper a few months ago (when I bought). So the forex isn’t quite the advantage it might seem like, at least not with all stocks. As always, it’s a market of stocks rather than a stock market – not all stocks respond the same way. That said, I like DEO here. That’s one that’s on my radar for a potential purchase at some point in the near future.

    Thanks for dropping by. Hope all is well!

    Best wishes.

  19. wizards,

    Thanks for taking the time to drop a comment. Much appreciated! 🙂

    The Canadian economy isn’t nearly as robust as the US economy, which is why our stock options – especially as dividend growth investors – are somewhat limited. In addition, it’s a small economy. The entire country’s population is less than that of California. You’re basically looking at three areas: banking, energy, and telecom. There are some other options there, like with rail, but that’s where the majority of your options are. It appears to me that the banks offer the best values right now, but there are some good long-term options over there in telecom and energy, as well as the railroads (especially CNI). So my short list would include BNS, TD, and RY. TU seems pretty decent here, as does BCE. In energy, I like SU.

    Hope that helps!

    Take care.

  20. The primary reason BNS (and other Cdn banks) are down on the NYSE is currency exchange. The Cdn dollar has taken a beating, so picking them up in the US when the Loonie is down could boost your profit and payouts in the long term. Just wait for oil prices to increase (as they in evidently will) and the Loonie will follow.

  21. ADD,

    I wish I could add as much capital as I used to, but I’m okay with the current trade-offs. The last couple of weeks reminds me of the old me, though. Feels good! 🙂

    Banks are tough to analyze, no doubt about it. And there’s a lot of moving parts there. But it’s an age-old business model that still works really well. The risks there with the Canadian banks are probably about as high as they’ve ever been, but that’s why the value’s there. It’s not hard to buy stocks when everything is cheery, but that’s generally when you’ll pay the most.

    Thanks for dropping by!

    Best wishes.

  22. gmf001,

    Good call there. I should have discussed the FX issues more, but I view it as more of a short-term issue. And that’s something of an issue for just about every international company out there. Comes and goes. And it looks like BNS is down more than 13% on the TSE over the last six months.

    I don’t pay too much attention to currencies and what not, but I’m happy to pick up shares after a large drop like this. 🙂

    Cheers!

  23. DM,
    Good luck with this purchase. I am looking to add to my financial sectors although I haven’t looked too closely at BNS.
    Are there tax implications with Canadian companies? Eg handled like UL.
    Div4son

  24. DM,

    I have actually been looking to pull the trigger and pick up BNS since they have been getting pummeled lately causing their yield to spike. I’m glad I see a value investor such as yourself buying as it helps support my own reasons for purchasing. The only thing holding me back is a lack of knowledge with regard to foreign taxes being withheld.

    Great purchase!

    Regards,
    Dividend Odyssey

  25. The pipelines are also worth looking at, especially IPL, PPL and if you believe the Keystone pipeline gets approved at some point, you want TRP. Two other stocks preferred more by income investors, are FTS and EMA, both regulated, such as the banks, but have long term contracts in place.

  26. MD,

    Hey, looks like we’re on the same page there. Similar capital commitment and all. 🙂

    Sounds like you’re doing what’s best for you. Plenty of investors feel better with 20 stocks, some feel better with 50+. Whatever works, I say!

    Good luck with the AdSense. $3 could be the start of something great. Big things come from small beginnings. Keep at it!

    Cheers.

  27. Div4son,

    Good luck finding the right financial stock for your portfolio. 🙂

    You can read the comment above to Freddy M in regards to foreign taxation.

    Thanks for dropping by!

    Cheers.

  28. DO,

    Right. You definitely have to separate the quality out there when looking at picking up stocks that have dropped substantially over a short period of time, but BNS’s fundamentals are still really solid here. They have some short-term headwinds, but I think the long-term opportunity is there. But we’ll see. Perhaps Canada’s economy takes a much bigger hit than some are expecting. But that’s why you diversify.

    As far as foreign taxation, I mentioned a quick snippet about that to Freddy M above. 🙂

    Take care!

  29. DM,
    Another great purchase. The banking stocks are getting popular and that is a sector that I don’t have much exposure in. Looking forward to adding some exposure to the banking sector soon.

  30. Weve been spot on with our picks lately. Im looking at starting a position in BNS this week. Would have done it last week but I needed to do a bit more homework first. Nice purchase.

  31. Your don’t have to convince me about BNS. It’s old news that I like the large Canadian banks and they are still high on my March buying list. What else can I say except that I like the pick up and will probably be adding to my position as well. Headwinds aside, I can foresee a time when the U.S. dollar weakens once again and the Canadian dollar rises and interest rates go up too all helping the banks. Thanks for sharing.

  32. DGJ,

    Gotta go where the value/quality/yield is. 🙂

    If you’re looking for some exposure, this could be a good time. Though, the short-term headwinds appear to be quite real to me.

    Cheers!

  33. JC,

    Great minds think alike. 🙂

    BNS has some issues in the domestic market, but their diversification across loans and geographies should insulate them somewhat. And Canada’s housing market, though stretched, is very different from ours here in the US.

    The value, yield, and quality appears to be there. So I’m on board here!

    Best regards.

  34. DivHut,

    Agreed. Currencies fluctuate against one another. What’s a headwind now will likely be a tailwind later. I largely ignore all of that and fluctuate on quality, fundamentals, the business model, and prospects for future growth. Wonderful companies will likely do wonderfully over long periods, which is really all I care about. 🙂

    Glad to be a fellow shareholder!

    Take care.

  35. I bought TD and HSBC on 3/13. I will be buying BNS in month of March. I also added to KO, PG, PM, and XOM last week.

  36. DM, Love this buy. I’ve been back and forth on Canadian banks as they’ve slid wondering how far they can go. BNS breaching $50 has gotten my attention, even more so following your fantastic analysis that drives home how rock solid this bank has been over the past century-plus.

    Also, one glance at the five-year chart shows that BNS is in the lower end of a fairly tight trading range. This is the time to buy in my opinion.

    I admit to being tempted to up my stake — the only Canadian bank I own — if BNS remains under $50 this week. In fact, I’ve already maneuvered ammo into the chamber 🙂

    Best,
    DWC

  37. XOM and CVX have been screaming at me at 10 times earnings. Must resist…energy…stocks.

    PM is screaming at me too. I wanted to wait until the Lorillard deal goes through first adding any more tobacco stocks, because LO has rapidly turned into my largest position, and I’ll end up with a big pile of cash when/if the deal goes through. And it’s trading at a discount to the deal price, so I can’t just go and sell it. So, I guess I just have to wait.

  38. Great buy at the current level, Jason. BNS is a fantastic company and I love it as one of the best banks in Canada. Like you pointed out – you need to take a second to let the dividend start date to sink in. Hard to beat that record!

    Best wishes
    R2R

  39. DWC,

    Once ammo is maneuvered into the chamber it’s all over. 🙂

    Anything related to the valuation is definitely on the low end here, looking out over the last five or so years. We’ll see how it goes, but the upside seems far greater than the downside if you have a fairly long horizon.

    Best regards!

  40. Justin,

    I hear you there on PM. It was also my largest position at one point or another and it remains one of the largest to this day. It’s doubtful I’ll ever buy any more shares, but I’ll be glad to collect those big dividends to redistribute as I feel fit.

    Happy shopping out there! 🙂

    Take care.

  41. Rich,

    Right, I did mention it. I don’t personally think I understated it either. The loan portfolio is minimally exposed to O&G, though there could be some larger issues at play there due to the way Canada’s economy is set up, which may affect the bank in other areas. Overall, however, BNS is diversified across loans and geographies, which should insulate them somewhat against any one particular issue. If the entire economy crashes then all bets are off for them and most companies in Canada and perhaps other countries.

    Cheers!

  42. Hey DM congrats on the new purchase !
    I’m impressed they performed so well in the financial crisis, hopefully they keep on performing for you ! 😀
    CG

  43. Nice buy DM, at a good price. I am a BNS shareholder and was looking at averaging down this week under 50 as well, but decided on more KMI and HCP under 40 instead. Great picks to choose from! BNS is on the watchlist for next month as well as topping off BBL if it falls again, DEO, DOV and T. I feel like I should be adding more yield to my portfolio at this point to take advantage of price fluctuations in other stocks in the coming years as interest rates go up. Nothing like a steady and increasing divvy cashflow to reinvest in volatile markets, right!

  44. Thanks it sure helps.

    I’m already too much exposed to energy, and one Canadian Bank seems enough.

    But BCE seems interesting (CNI as well but the entry yield is a bit too low for my taste).

  45. Picked up more BNS on the 11th myself! I saw the price dip below $50, checked out the company again, and basically came to the same conclusions as you did.

    Love that dividend history! And of course, the low payout ratio + high yield.

    Congrats on the new purchase. Also, always nice to have some free trades.

  46. I´m looking for this company several months and I will add my first shares in April. I think, the Canadian banks are very interesting. On the other hand my main focus will stay on KMI and BBL, which I´m buying at the moment. There are many oppotunities at the moment to buy good stocks at interesting prices. On the other hand I saw a discussion for €- or UK-stocks because the exchange rate for Americans is so good. Especially the German shares are very expensive as there are a lot of US people investing in the DAX shares in Germany. May be they will go up for a while in the future, but there is a lot of risk at the moment, because the increase was very fast. On the other hand the weak € is helping the European economy and this is a positive aspect. But I´m not too sure to invest there a big amount at the moment.

    One of my target will be to own shares of all six Canadian banks one time. But this will take its time. I think, a nice add to your portfolio.

  47. BNS is a strong company, you don’t have to worry. Good luck with this purchase! Still keep a close look on the real estate market in Canada as it might influence the numbers.

  48. I think banks are, in general, veryb risky. But then, I live in Portugal and in the past 10 years almost half the banks around here had problemas, some closed and many lost tons os money. Fortunatelly that is not my case and, maybe because of that, I don’t want to make more business with banks. They keep my money, and that’s it!

  49. Hey,

    I think this is a solid buy, I bought some myself at the end of December. My cost was obviously higher but I’m not worried about that. I’m also looking at TROW and AT&T at the moment. My only concern right now are the high valuations combined with the strong dollar against euro, as I’m getting my paycheck in euros. These two reasons make me very cautious with new buys and actually I think I’ll hold on and load my BB-gun for a while.

    Keep up the good work!

    -Ville

  50. Congrats on the buy. I’ve been eyeing BNS for a while (I already own a few shares), maybe once the bonus comes through I will snatch some up! I love dividend investing…its pretty addicting to watch your money make money!

  51. DM,

    Saw someone else above mentioned MGD’s buy of it too. It is a great deal right now, in fact all the CAN banks are. Dividends since 1833 is an amazing stretch, and one to continue betting on. Fun fact, BNS used to own the naming rights to the Ottawa Senators arena, changed recently. Since you like hockey, I’d figure you would appreciate that.

    Regards,
    Dividend Gremlin

  52. CG,

    Thanks!

    Yeah, I hope they perform well when the next major crisis inevitably occurs. The last one didn’t really impact the Canadian economy all that much, so I think that’s partially why they escaped relatively unscathed. The current issues up there remind me a bit of what we had going on back in 2007 or so. Fortunately, regulation is a lot tighter up there. We’ll see. 🙂

    Thanks for dropping by.

    Take care!

  53. Daniel,

    Nice job over there. It’s wonderful to have some options out there. We’re fortunate in that we have easy access to some of the greatest businesses in the world. 🙂

    Keep up the great work. Those big dividends will likely rain more and more cash upon you for years to come.

    Cheers!

  54. Seraph,

    I’m with you. The combination of a high yield and low payout ratio is impressive, especially when it’s backed by a company with the kind of dividend legacy that BNS sports. 🙂

    Best regards!

  55. olli0816,

    Great point there about KMI and BBL. I guess when I’ve been mentioning expensive stocks lately, it’s only from my perspective. If I didn’t already have as much KMI and BBL as I’ll ever need, I’d surely be investing there. So those with more flexibility have a lot more options. 🙂

    All six major Canadian banks probably isn’t a bad way to go. I personally like BNS, TD, and RY the best, but it’s nice in that many of them differentiate themselves in some way. So owning all six would give you exposure to something a little different.

    Thanks for dropping by!

    Cheers.

  56. Mihai,

    Thanks!

    Good call there on the real estate market. Not much I can really do about any of that, but it’ll be interesting to see how much higher it can really go, especially with the consumer debt levels.

    Thanks for stopping in.

    Take care.

  57. Nuno,

    Nothing wrong with that perspective at all. Some people just choose to avoid banks. And that’s really what’s so great about individual stock investing versus, say, index investing. You get to choose those businesses you want to be a business partner with. And since there are thousands of options out there, there’s no sense in investing in anything that you’re not 100% comfortable with. 🙂

    Best regards.

  58. Ville,

    The higher price probably won’t matter too much in the long run. What will be far more important is how BNS performs. And if the last 100 years are any indication, we should do well. 🙂

    I can imagine the strong dollar is limiting your opportunities right now. That’s a shame, but it just gives you a chance to keep that BB gun fully loaded.

    Cheers!

  59. kline01,

    I’m also a dividend addict. I can’t quite think of any addiction that’s so wonderful, however. 🙂

    Happy shopping out there. Hope a great opportunity rolls around when that bonus hits!

    Take care.

  60. DG,

    Yeah, almost 200 years of dividend history. That’s an incredible and amazing legacy. It’s gotta be one of the oldest out there. And it’s definitely a legacy I feel comfortable on betting to continue. 🙂

    I actually wasn’t aware of the naming rights to the arena. Very cool. I once looked at Rogers because I thought it’d be interesting/fun/cool to own a piece of some sports teams, but the economics just didn’t work for me.

    Best wishes!

  61. Hi Jason,

    Nice article, but I hope you don’t mind me asking a nit-picky question. Looks like your principal investment here is (15)($49.5) = $750. Assuming you invested through Scottrade with a $7 transaction fee, that’s almost a 1% fee, which seems a little high for you. I personally try to limit my transaction feeds to 0.5% or less. Is there a reason you didn’t wait to accumulate a little more cash so you could make a bigger investment and lower your cost here? Or maybe your fee was less than $7?

  62. Ryan,

    From the last paragraph in the Valuation section:

    “I also want to note that this transaction is much smaller than usual due to the fact that I had some free trades with my brokerage, Scottrade. A reader kindly used a referral code upon opening a new account to give us both a few free trades. I’m not working with as much capital as I used to, but I had a chance here to put a little capital to work and keep the snowball rolling.”

    Cheers.

  63. Great buy Jason. We own BNS as well and really like their business model – keeping public’s money for a fee, and lending out money to public for an even higher fee. As you know, we’ve added our BNS positions a few times the last few months. Want to keep buying more so we can DRIP another share of BNS. 🙂

  64. Great overview of BNS Jason. Iv been liking their current valuation lately as well and will be adding some more to my portfolio as well :).
    Happy investing!

  65. Seriously dude, your website is so awesome. I have been reading all the “recent buy” articles you have, since the beginning, thank you for chronicling your journey – there is so much for someone like me to benefit from! I am reading more and more books on dividend investing, and your website supplements my own educational journey here by allowing me to see the principles fleshed out in someone’s life. Your story is the ongoing narrative that helps to clarify certain investing details that I am learning – so thanks man!

    So, I am curious if you have any place on your site that explains the issue regarding “weightings” towards different sectors. For example, I am watching XOM right now and am amazed at the price discount! But you said recently that you felt that you had too much weighting in your portfolio towards the energy sector… can you maybe point me to something that would explain why “weighting” is important? I am thinking about some lines I heard from Buffett regarding focus investing and not being as concerned about weighting (like, if you have a great deal, why not overweight it?). Just curious, I still have so much to learn! – and again – thanks for everything Jason!

  66. Hi DM,

    Seems like a solid addition. I just looked up the company and it seems like a solid buy. If I go for financial stocks I personally prefer insurance companies or private banks.

    Keep pushing that snowball ( altough a bit hard in your sunny area:)).

    Cheers,
    Geblin

  67. Tawcan,

    Banking has been a generally great business model for a long, long time and I think it’ll remain so. Why not benefit, right? 🙂

    Glad to be a fellow shareholder. Let’s hope BNS continues to do right by us.

    Best regards!

  68. DW,

    The valuation seems pretty strong here, though earnings could take a hit if there is significant weakness in the broader economy and/or if the loan portfolio takes a hit. However, these appear to be short-term problems that BNS has plenty of experience with.

    Happy shopping. 🙂

    Best wishes.

  69. JC,

    Thanks so much. I’m glad you’ve been reading plenty and using the blog as a supplemental tool, which I think is the best way to look at this. You’re right in that it’s all the principles fleshed out in real life on a real-life journey. I basically try to show what all of this looks like where the rubber meets the road, taking theory to the test. 🙂

    As far as weightings go, I briefly touched on what I’m aiming for in this post:

    https://www.dividendmantra.com/2015/01/personal-capital-a-solid-and-free-portfolio-management-tool/

    I haven’t written an entire article dedicated to the subject, but maybe I should. The reason I haven’t is that it’s all subjective. What is good for me may or may not be good for you. But I may expand on what I discussed in the PC review.

    I think the S&P 500 is a good place to start, whereas you can customize it from there. I find that most of the really stable companies with relatively secular growth and lengthy dividend growth histories tend to lie in the branded consumer space (PG, CL, KO, MO, PEP, MCD, etc.), which is why I have such a large weighting there. You’ll find areas like energy, commodities, construction, and finance a bit more bumpy, which is why I’m not as keen to go quite so heavy in those areas. But you’ll have to really find what works for you as you build your portfolio out. And, speaking of which, weightings will change as you go. You’ll learn as an investor and likely change, and every new investment will change your weightings as you go.

    As far as XOM in particular, I’m not that big of a fan since I was able to buy in at a similar price back when oil was much higher. Either I got a steal or there’s further weakness ahead.

    Hope that helps!

    Best regards.

  70. Geblin,

    The sunshine down here isn’t so conducive to snowball rolling. Good point! 🙂

    I like the insurance stuff too. That’s an area that I keep wanting to come back around to, but then I end up in different areas. So many stocks, so little capital.

    Thanks for dropping by!

    Cheers.

  71. It’s amazing how well the Canadian banks have fared compared to the US ones. I can’t think of any US banks with dividend histories that go back to the 1800’s (most of the biggest have not recovered and some aren’t even paying a dividend yet), but you look at BNS and you look at TD and it’s just amazing. I mean, BNS has paid since 1833; by the time the United States had fought its Civil War and abolished slavery, BNS had been paying for 30 years! Abe Lincoln wasn’t anywhere near being president when they started. It’s almost surreal. Well, not “almost”. Numbers like that are beyond simply impressive.

    And everybody seems to love the Canadian banks nowadays. I know that you should have some TD branches near where you are, Jason. Up here, the TD’s are all over and customers seem to like them a lot. They market themselves as the friendly service bank. They are growing at an incredible rate and I’ve been considering them as one of my next purchases (certainly my next bank purchase.

    As always, good luck on the march to financial freedom. You’re closer than I am by a long shot, so I hope to see you there soon in the “promised land”.

  72. i actually bank with BNS and they try and skim you for everything – some of it isn’t cheap ( joys of canadian banking ) lol – that’s where some of the profits come from 🙂

  73. Good buy. I bought BNS at 60,80$…bad descicion I think but now there is the chance to average down 🙂

    How do you choose the size of a stock in your portfolio? For example why do you invest 2500$ in BNS and not 4000$?

  74. ARB,

    Yeah, it’s crazy. By the time WWII broke out, BNS had already been paying dividends for 100 years. It’s wonderful to have that kind of legacy working for you. 🙂

    There are some branches down here in Florida, but none are very close to me. At least not that I’m aware of. But I do like TD quite a bit. They’re growing nicely here in the US, which gives them a nice footprint across North America. RY is another great Canadian bank that I like.

    Appreciate all the support. We’re all marching there together!

    Best wishes.

  75. Superstar DM,

    Some say you can’t get enough of a good thing. Well, I had to move again today and bought some more Bank of Nova Scotia (BNS). Am I addicted? I guess I’m just in line with my strategy, 😉

    Take care fellow BNS shareholder.

    MD

  76. T,

    Appreciate your business very much! 🙂

    I understand the fee structure is quite a bit different up there. That could be a long-term headwind if some kind of regulation change occurs up that way, but I see nothing that threatens the status quo.

    Cheers!

  77. mephisto,

    I hear you. I bought around that level back a while ago myself. BNS has been a poor performer in terms of total returns, but short-term volatility/weakness is typically a long-term opportunity. Really depends on whether or not you believe in the bank and the Canadian economy in general.

    As far as how much I commit, I look at managing risk first. Financial institutions tend to be a bit higher on the risk scale in comparison to, say, a Unilever. So I don’t like to go too heavy on any banks really. WFC is one where I made an exception because I thought the value was extraordinary, but that’s about it. I’m also bound by my own capital. As such, I have to be careful about where I commit capital.

    Thanks for dropping by!

    Take care.

  78. BNS is in the air!! A lot of dividend bloggers seem to buy or add-in for a few weeks! I sure understand why, I’m a fan of the Canadian banks for a long time. Another step further, congrats!

    Cheers!

    Mike

  79. Mike,

    The Canadian banks have a lot to like, though BNS has really been one of my worst picks from a total return perspective. That said, I’m not all that displeased about that. Cheaper equity is always welcome! 🙂

    Best regards.

  80. The fee structure up there is different? Mind if I ask how it differs from the US? My sphere of knowledge comes from American banks, and even if the basic principles are the same, different countries (and sometimes different states) do things so differently that you could only wonder if they are really part of the same industry.

    When I started, there was a girl who recently as a personal banker. She had a banking background in I forgot what country (one of the Caribbean island countries, I think), but she couldn’t get adjusted to the US banking system at all and eventually left. I never did learn what was so different.

    It’s interesting when other countries do things wildly different than here. Especially when our way of doing things is so engrained that we can’t imagine other countries doing things other ways, whether it applies to family time, sports, politics, work, or on this case, banking.

  81. ARB,

    Right. The oligopoly that exists up in Canada allows pricing to occur at a level that’s above what you might see here in the US. For example, you can see some of Scotiabank’s fees here:

    http://www.scotiabank.com/ca/en/0,,16,00.html

    Banking in general seems to work fairly similar up there, but it’s just regulated differently and the market isn’t as fractured.

    Cheers!

  82. Wow. Another solid buy! Congrats! I am also eyeing Canadian banks, and will become your fellow Canadian bank shareholders soon. 🙂

  83. MU,

    Would love to have you on board as a fellow shareholder. The big Canadian banks have a lot to like, as far as banks go. Always enjoy a good oligopoly. 🙂

    Thanks for stopping by!

    Cheers.

  84. Wow, they charge for teller transactions? My customers would spend their time inventing new curses to hurl at my and my coworkers if that ever happened.

    I think one’s opinion of the bank would fluctuate wildly depending on if they were a customer, employee, or shareholder. As an investor, I definitely like what I see and I think you made a fine choice there.

  85. Congrats again on this purchase, Jason! Wonderful analysis and thesis for the buy. I hope you’re having a nice week so far!

  86. Ryan,

    Thanks so much. Really glad to be a fellow shareholder. I think BNS will treat us well over the long haul! 🙂

    Having a great week over here, thus far. Hope the same for you.

    Best regards.

  87. For the record, I decided to sell BNS this morning and bought SNC Lavallin(Engineer Firm). In regards to Canadian Banks, I think you should take a look at National Bank (NA.TO) and Royal Bank (RY), they make a good part of their revenue from the trading market as compared to the traditional mortgage and loan. I don’t think the mortgage industry will do well in Canada for the years to come. We look a lot like the US in 2007 right now…

  88. DivGuy,

    I like Royal Bank a lot as well. If I were to buy another Canadian bank, it’d be RY. But I don’t really have plans right now to buy another bank up there.

    I think I laid out the case as to why the housing market is very different up there than what we have (had) here in the US. The LTV ratios are very different and the laws regarding recourse are also quite different. But I agree the debt-to-income ratios are getting a little crazy up there. Growth in mortgages, I would assume, are going to slow considerably at some point. But, like I mentioned, BNS is pretty diversified across loans, segments, and geographies. I’m not really worried when looking out over the next few decades. 🙂

    Cheers!

  89. Hi Jason, I wanted to runs few REITs by you… Gov, sir and snh are some high yielding REITs with fairly attractive balance sheets in my opinion. I was wondering if you had ever come across them. In particular I was fond of gov which rents largely to government entities. It seems like a stable company with great yield. Thoughts?

  90. George,

    I cam across GOV at some point quite a while ago. There isn’t much of a dividend history here and it’s not really growing by much either, so that’s something to be aware of. I see the pros as a stable tenant base (the govt. isn’t going anywhere), an attractive valuation, and a well-covered dividend. I see the cons involving the aforementioned dividend metrics, though that’s somewhat offset by a high yield. I think one really has to wonder how much it can grow. It’s not like the IRS or FBI is going to be growing like gangbusters anytime soon, as far as I’m aware. Seems like a solid bet for strong current yield, but I do wonder about the growth prospects.

    Hope that helps!

    Best regards.

  91. I agree. I was planning to use it as a base to start the income flowing and then reinvest in better growth stocks and REITs. Thanks for the help!

  92. Hi Jason, another great buy! Your posts help me very much to add some companies, which I never heard of, to my watchlist. Once fresh capital is available I’ll look for great opportunities. Guess this will be one! Keep up with your great work!

  93. Oh Cool. I had just decided to buy some BNS a few days before your blog post. It’s always nice seeing someone else make the same decision to help reinforce my opinion of making a good choice! 🙂

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