Two of Canada’s big five bank stocks—one known for its global operations, the other more domestic—recently raised their dividends and are both blue chip financial stocks to buy for income and growth.
The Bank of Nova Scotia (TSX—BNS; NYSE—BNS) is a full financial services provider. Operating as Scotiabank, it provides diversified financial products and services to retail, commercial and corporate customers around the world.
Scotiabank’s third quarter was better than expected with a one-year price change of 16.2 per cent. Scotiabank reported adjusted diluted earnings per share of $1.55 for the quarter, up from $1.47 a year ago, and ahead of the consensus estimate of $1.49. The bank said the results were driven by strong operating performances in all three of its business lines.
Notably, international banking increased its earnings nine per cent to $527 million, driven principally by the Pacific Alliance countries of Mexico, Peru, Chile and Columbia. Scotiabank is Canada’s third-largest bank by market capitalization. It’s regarded as Canada’s most international bank, and is a leading financial services provider in North America, Latin America, the Caribbean and Central America, and Asia-Pacific.
For the nine months ended July 31, 2016, Scotiabank made $5.5 billion (adjusted net income attributable to common shareholders), or $4.47 a diluted share, compared with $5.2 billion, or $4.26 a share, in the same period of 2015. The results reflected higher net interest income and non-interest income, as well as the positive impact of acquisitions and foreign currency translation.
As expected, Scotiabank raised its dividend with the release of the second-quarter results. The bank now pays a quarterly dividend of $0.74 a share, up from $0.72 previously. Part of Scotiabank’s investment appeal is its international business, which has good long-term growth potential. We expect the international banking segment to deliver stronger growth as it integrates recent acquisitions and benefits from restructuring efforts.
Scotiabank trades around a reasonable 12.1 times the $5.93 a share it’s forecast to earn this fiscal year. The current annual dividend of $2.96 a share yields 4.1 per cent. Scotia is a bank stock to buy for income and growth.
CIBC beefing up its international operations
Canadian Imperial Bank of Commerce (TSX—CM; NYSE—CM) is one of the big five Canadian banks serving clients through three business including retail and business banking, wealth management and wholesale banking.
CIBC is beefing up its foreign presence. The bank has agreed to acquire Chicago-based PrivateBancorp Inc. in a transaction valued at about US$3.8 billion. With $17.7 billion in assets, PrivateBancorp is a middle market commercial, private banking and wealth management organization with community banking capabilities. The transaction is expected to significantly expand CIBC’s reach in North America.
CIBC is fifth-largest of Canada’s big five banks by market capitalization. Through its three main business units—retail and business banking, wealth management and capital markets—the bank provides a full range of financial products and services through its electronic banking network, branches and offices across Canada, with offices in the U.S. and around the world.
For the nine months ended July 31, 2016, CIBC made $3.0 billion (adjusted net income attributable to shareholders), or $7.62 a share, compared with $2.8 billion, or $7.09 a share, in the same period of 2015.
Net income at retail and business banking rose 7.8 per cent to $2.0 billion, primarily due to higher revenue. Revenue was up at personal banking thanks to volume growth, and it was also higher at business banking, caused by volume growth and higher fees. Wealth management net income was up 86.4 per cent to $738 million, primarily due to a gain on the sale of American Century Investments. Capital markets income rose 3.1 per cent to $800 million due partly to higher revenue at global markets and corporate and investment banking.
In May, CIBC declared a quarterly dividend of $1.21 a share, up from $1.18 previously. We think CIBC is moving in the right direction with the acquisition of PrivateBancorp, as the bank will reduce its dependence on the domestic market.
CIBC shares trade about 10.1 times this fiscal year’s forecast earnings of $9.99 a share. The stock yields 4.8 per cent. CIBC is a financial stock to ‘buy’ for income and growth.
The MoneyLetter, MPL Communications Inc. 133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846