Despite recent gains, Bank of Nova Scotia (TSX:BNS) stock is still down significantly for the year. Investors who missed the bounce are thinking if BNS stock is still inexpensive and a decent investment for a portfolio centered on total returns and passive income.

Bank of Nova Scotia Overview

The Bank of Nova Scotia currently has a market valuation of around $81.5 billion, making it the fourth-largest bank in Canada. Due to its substantial worldwide operations, particularly in Latin America, the company stands apart from its competitors. Over the past three decades, Bank of Nova Scotia has spent billions of dollars buying banks in Mexico, Peru, Chile, and Colombia. The Pacific Alliance trade bloc, which allows for the free movement of people, goods, and capital, is centered on these nations. More than 230 million consumers live in the three nations, but few have access to financial services.

As a result, Bank of Nova Scotia has excellent prospects for long-term growth. More people should need loans and investment items as middle-class income rises. Businesses that grow across the markets of the Pacific Alliance require a range of cash-management services on the commercial banking side.

However, investors might be concerned that the operations in Latin America carry excessive geopolitical and economic risk. The four nations are subject to commodities market volatility since they primarily rely on the price of oil and copper for their economic survival. Political unpredictability is also a constant worry.

Bank of Nova Scotia’s share price is currently $68.50. That’s down nearly 25% from the start of the year and about 18% lower than where it was five years ago.

Bank of Nova Scotia earnings

The fiscal 2022 results show a more promising future than the market price suggests. In fiscal 2022, Bank of Nova Scotia’s adjusted net income increased to $10.75 billion from $10.17 billion during the same time in the previous year. This year, return on equity increased from 15% in 2021 to 15.6%.

The international banking division had a strong year, reporting a 32% surge in adjusted earnings to $2.45 billion.

Dividends

Since 1833, Bank of Nova Scotia has distributed dividends. When the bank released its results for the second quarter (Q2) of 2022, the board raised the payment by 3%. Additionally, an 11% hike was announced in the latter part of last year. The dividend offers a 6% annualized yield as of this writing.

Risks

Due to its significant exposure to Latin America, Bank of Nova Scotia may be a riskier investment than its rivals. Experts fear that a global recession will start in 2023 or 2024 and that it will be difficult for emerging markets to recover. As it did during the epidemic, Bank of Nova Scotia’s foreign group might suffer significantly if things go truly bad.

Investors in Canada are likewise keeping an eye on the declining home market. Canadian households carry large debt loads, and a sharp economic downturn could result in job losses and a rise in loan defaults. Like its Canadian counterparts, Bank of Nova Scotia has a sizable portfolio of residential mortgages in that country. Bank stock prices might decline if housing prices fall.

For the moment, economists are predicting a short and mild economic downturn in Canada in 2023.

Should you buy Bank of Nova Scotia stock now?

Even though the stock is trading at just 8.5 times trailing 12-month earnings, continued volatility should be expected. While you wait for a recovery, you are given a respectable return, and the dividend should be safe. While BNS stock is still out of favor, contrarian investors looking for passive income and a chance at respectable capital gains might consider including it in their portfolios.