Recent Sell – Bank of Nova Scotia

Another sale from my portfolio. Regular readers may be aware that I have been liquidating a lot of my portfolio as this market enters the nosebleed section. Valuations are at all-time highs and the world of finance looks just as dangerous as last decade, if not worse. I am of the opinion that holding large positions of cash going into the next crisis is a better strategy than trying to stay invested and trying to squeeze out an extra 1% or 2% in dividends or capital gains.

Last week, I sold 45 shares in Bank of Nova Scotia (BNS.TO) @ C$71.00 and closed my position.

Recent Sell Decision

  • I have been selling for a variety of reasons — including market valuations, herd mentality from other investors, simplicity focus I desire and SWAN reasons. I have detailed all these thoughts in this post.
  • While the valuation of this particular stock is fine — its not overpriced by any measure, I decided to simplify my life and reducing the number of holdings. I want to follow a more concentrated approach to investing and betting big on a smaller set of companies.  So, the decision came down to whether I want to own two Canadian banks (the other one being Toronto-Dominion Bank (TD)), which have the similar exposures operating and competing with each other. After some consideration, I decided that I want to own just one. TD’s balance sheet, risk-profile and growth prospects are better in my opinion. This led me to decide to liquidate BNS and exit the position.

Total profit (including dividends during holding period of ~2 years): 12.47%

Full Disclosure: Long TD. Our full list of holdings is available here.

Bank of Nova Scotia Dividend Increase

Bank of Nova Scotia (BNS) announced a dividend increase of 2.86%. The quarterly dividend increases from C$0.70 to C$0.72 per share and payable on Apr 27, 2016, to shareholders of record at the close of business on Apr 5, 2016.

Bank of Nova Scotia is a Dividend Challenger and this is the 6th consecutive dividend increase from the company. The annual dividend amount increases from C$2.80 to C$2.88. Yield going forward is 5.26%.

From the earnings release statement:

“We delivered strong earnings to start 2016 with solid top line growth in both our Canadian Banking and our International Banking businesses,” said Brian Porter, President and CEO at Scotiabank. “The Bank’s diversified business model has delivered growth despite continued volatility in the markets and some moderation in select areas of our operations.”

“Canadian Banking’s focus on growing and deepening customer relationships continued to drive higher year-over-year earnings. These efforts resulted in strong volume growth in targeted areas across both retail and commercial loans and deposits, which improved our business mix and resulted in a 19 basis point increase in the net interest margin this quarter.”

“International Banking’s strong performance continued in the first quarter of 2016, with good year-over-year growth. The Pacific Alliance countries of Mexico, Peru, Chile and Colombia continued to deliver robust loan, deposit and fee growth – and we continue to see great potential in these markets.”

“The Bank’s Common Equity Tier 1 capital ratio remains strong at 10.1%. We increased our quarterly dividend 2 cents to 72 cents per share – 6% higher than a year ago.”

“We remain focused on building an even better Bank. With a strong team in place, we are executing against a strategy that will drive value for shareholders.”

Our portfolio consists of 45 shares of BNS, which increases our annual dividends from C$126.00 to C$129.60, an increase of C$3.6.

Diversification of Canadian Banks – Take Two

Last week, I posted an article that took a deep dive on the geographical diversification of the Big Five Canadian banks – Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM). The article can be found here.

In that article, I presented data for geographical revenue diversification of the banks – and presented 10-year trend charts.

Revenue provides only part of the story, and I decided to continue digging and pull the earnings numbers as well. Unfortunately, the earnings presented in the annual reports are broken down by segment and not geographical regions, so there is no apple-to-apple comparison to see which geography is earning the most. However, looking at the segment breakdown can also provide some insight on which direction a bank is headed.

For the sake of completeness, I am also including the charts for geographical revenue diversification in addition to the earnings-by-segment charts. Enjoy.

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Geographical Diversification Of Canadian Banks

The fiscal year for the Big Five Canadian banks ends in October. With the end of the year, and a delay of a few weeks, companies release their annual reports which give investors a clear picture of the overall operations with breakdown in revenue and earnings. This is vital information for long term investors and provides visibility into the operations.

Management may say one thing or another, but the numbers always speak for themselves — and confirms whether management is executing the path that is paved by the ideas generated in order to look for stability and growth. This article will take a look at the state of affairs of the Big Five Canadian banks and their geographical diversification. The five banks take the lion’s share of the Canadian financial markets and also have sizeable operations in U.S. and overseas markets. The data for each of the banks presented below has been extracted for each company’s respective annual reports for the year.

CdnBanks - Geographical Diversification 2015

In addition to the revenue diversification for the year 2015, this article takes a look at the trends of how the geographical diversification changed over a course of past ten years.

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Sector Overview – Canadian Banks

This article provides a sector overview of the Canadian banks. The Canadian banks are counted amongst the safest and most stable financial institutions of the world and have a proven track record of being conservative and focusing on long term growth and prosperity. It is no wonder that the banks routinely find themselves in portfolios of most long term focused investors and make for a great core position. The banks are also great for income focused investors as they paid a good starting dividend and also raise those dividends regularly. Now that Canada is facing a lot of headwinds in the economy, most bank stocks have been beaten down and provide a great opportunity to initiate/add to the position.

My previous articles in the Sector Overview garnered plenty of interest as you readers found it valuable. So, without further ado, here’s a sector overview for Canadian banks.

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