Investors looking for stability in their portfolios can make a good investment with the Bank of Nova Scotia (BNS), otherwise known as Scotiabank. 

The Bank serves over 25 million clients around the globe. The bank operates in four areas: Canadian Banking and International Banking; Global Banking and Markets; and Global Wealth Management.

The Bank of Nova Scotia has our full support. (See Analysts’ Top Stocks on TipRanks)

BNS: The Things We Love

Bank of Nova Scotia is among the “Big Five” Canadian banks. Because of this, Bank of Nova Scotia is an oligopoly and the third-largest Canadian banking institution in terms both assets and market value.

Canadian banks are known for their resilience and have been praised by the international community. They are less volatile during economic crisis than the market overall.

It is therefore a safe and secure way to grow wealth long-term by betting on banks like BNS.

Valuation

The dividend discount method will be used for BNS valuation. We will apply a single-stage DDM to demonstrate stock value. Here are the assumptions we made:

Risk premium for equity: 4.7%Risk-free Rate: 1.55%Beta : 0.83Cost to Equity: 5.45%Perpetual Growth Rate: 2.1% (set at the U.S. 30 Year Bond Yield) Dividend per Share: $2.84

Fair Value = 2.84 ÷ (0.0545 – 0.021)

Shares of Fair Value: $85.78

BNS’s market value is 2.1% percent, which we can easily see if using the current discount rate. The chances of it growing faster are higher than we believe.

Growth catalysts

It is expected that interest rates will rise as the economy recovers from pre-pandemic levels. If inflation is higher than anticipated, this will be especially true. 

Our expectation is that Scotiabank will benefit from an increase in interest rates. Because it will get higher interest payments through government Treasury bills for customer deposits, this is why Scotiabank should expect to benefit. 

Additionally, the company will have more options to finance loans. If borrowing costs don’t increase as rapidly, it could result in higher net interest margins.

We also like the fact that Tangerine Bank is a fully-online subsidiary of BNS. It is easy to open an account and apply for financial products. Tangerine appears well-positioned for the young demographic who like to shop online. Tangerine clients are able to deposit or withdraw money at BNS ATMs because Tangerine’s ownership is BNS. 

Scotiabank is billed as Canada’s most internationally-oriented bank due to the acquisitions it made in Latin America, the Caribbean and Europe, among other places.

International expansion could expose the bank to increased risks. It also opens the bank up to higher potential growth.

Wall Street Take

The Bank of Nova Scotia is rated Moderate Buy based upon five Buys as well as four Holds in the previous three months. The average Bank of Nova Scotia price target of $69.09 implies 11.5% upside potential.

Last Thoughts

Scotiabank seems to be a reliable and safe investment. It is well-positioned to reap the benefits of rising rates, shifting to online banking and global growth.

Disclosure: Stock Bros Research didn’t hold any position at publication in the securities listed in this article.

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