Scotiabank

Your money is in good hands here

Stashing your savings under the mattress isn't really advisable. Banks manage money safely, and you can conveniently pay at the checkout with a card or even your smartphone. But what about banks as an investment? Since the 2008/09 financial crisis at the latest, most stock market investors have been avoiding bank and financial services stocks. And not without reason. A great many banks haven't been able to get back on their feet for over 10 years. A Lehman Brothers went completely bankrupt, a Deutsche Bank makes negative headlines nonstop - quite the opposite of a bank from Canada.

The "Bank of Nova Scotia", or Scotiabank for short, shines with a rising share price and wonderful dividend growth. So what is this bank doing right that so many other banks are doing wrong? And where do they get the money to pay a generous profit distribution every year for over 185 years?

The history and business model of the Bank of Nova Scotia

In 1832, a few businessmen from Halifax, Nova Scotia (on the eastern edge of Canada) decided in a coffee house to found their own bank - the Bank of Nova Scotia. The reason for having their own bank was dissatisfaction with other financial managers. No sooner said than done: on 08/29/1832 they opened their first branch in Windsor. A year later, in 1833, the businessmen decided, in the same coffee house in Halifax, to pay their first dividend of 3%. And it wasn't to be the last ...

At first, the bankers limited themselves to the Atlantic provinces. Only about 50 years later did they dare to expand to the west. In 1882 they opened a branch in Winnipeg (the middle of Canada), 3,000 km away. It was closed again a little later, but the pioneering spirit had taken hold in the minds of the board. Around 1900, Scotiabank had 38 branches in Canada, the United States and Jamaica. Through takeovers and acquisitions, it consolidated its business abroad.

Today the Bank of Nova Scotia is very well represented in the USA, Central & South America, the Caribbean, Australia, China, India, Europe and in Arab countries. It still makes 50% of its revenue in its home country of Canada, but the international business is growing rapidly. The bank already makes a quarter of group revenue in just the four countries of Mexico, Colombia, Peru and Chile. And this trend isn't surprising. With 230 million people, a young population on average and a growing middle class, Latin America is very attractive for banks.

The Canadians make 80 percent of their revenue in retail/business banking and wealth management. Scotiabank generates the remaining 20 percent in capital markets and investment banking. By the way, this split was also the reason why the financial crisis didn't hurt the bank as much as some others.

What's next for Scotiabank?

The next few years should remain rosy for the Bank of Nova Scotia. The international business will probably keep growing and it will be able to continue expanding. Granted, a nice and solid past is no guarantee of great future prospects, but I still maintain that Scotiabank is prepared for the "worst case" and will survive possible future financial crises. In addition, experts expect revenue growth of almost 7 percent in 2019.

Will the dividend continue to be paid so reliably?

Even during the 2008/09 financial crisis, the dividend kept being paid (though not raised!). As described above, the Canadians have paid a profit distribution to their shareholders year after year since 1833. The Dividend King currently yields 4.3% and also raises it by almost 6% annually. With a longer investment horizon, you can benefit from decent compounding here. By the way, the last dividend cut was in 1944 because of World War II!

Conclusion:
With hardly any other stock can you rely on the dividend as much as with Scotiabank. The board will certainly move heaven and earth to keep the streak from breaking. But it doesn't have to come to that. The Bank of Nova Scotia is very well positioned for the future - that's the kind of investment you'd gladly add to your own portfolio, isn't it?!