BNS - Scotiabank: A Sustainable 6.4% Yield At A Bargain Valuation

2024-03-20 07:00:00 ET

Summary

• A study published in 2022 found that the distress risk puzzle is empirically inaccurate for equities.
• Scotiabank’s revenue in the fiscal first quarter improved year-over-year as adjusted EPS slightly fell over the year-ago period.
• The company’s financials remain robust enough to justify its firmly A-rated credit ratings.
• Scotiabank’s shares could be priced 15% below fair value.
• The financial institution could be poised to deliver robust long-term total returns.

In investing, it's often said that the higher the risk, the higher the potential reward. There is an element of truth to this argument. Higher-risk asset classes like stocks and real estate have historically produced superior total returns to asset classes that are often touted as lower risk, including bonds and gold.

However, in equity investing specifically, a study released in 2022 with empirical data found this to be inaccurate. For this study, risk was measured by credit ratings awarded by the National Information and Credit Evaluation, Inc. or NICE Investor Service, Moody's-affiliated Korea Investor Service, and Korea Ratings....

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