Bank of Nova Scotia: A Closer Look at this Reliable 6.4% Dividend Stock

Manoj Prasad

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is one of Canada’s Big Five banks and also one of the top dividend payers with an impressive track record. Let’s take a detailed look at Scotiabank’s dividend metrics and whether this high-yield stock can continue delivering strong payouts.

Overview of Bank of Nova Scotia

  • Founded in 1832 and headquartered in Toronto, Canada.
  • Market cap of $59.11 billion, making it one of Canada’s largest publicly traded companies.
  • Serves over 25 million customers globally.
  • Employs over 92,000 people and has over 1,100 branches.
  • Provides personal, commercial, corporate, investment banking, and wealth management services.
  • Significant operations across the Pacific Alliance region.

Scotiabank’s Dividend Track Record

  • Has paid dividends uninterrupted for 189 years since 1833.
  • One of the longest dividend streaks globally across all industries.
  • Dividend has grown at 4.1% CAGR over the past 20 years.
  • Most recent increase was 1.28% in January 2023.
  • Current quarterly dividend of $0.78 per share.
  • Forward yield of 6.41% based on share price of $48.56 as of December 30, 2022.

Sustainable Dividend Coverage

  • Scotiabank has a healthy payout ratio of 71.46%.
  • Indicates dividends are well covered by earnings.
  • Q3 2023 EPS of $1.72 provides substantial coverage.
  • The bank targets a payout ratio between 50-60% going forward.
  • Leaves room for continued modest dividend growth.

Strong Capital Position

  • Common Equity Tier 1 (CET1) ratio of 12.7% as of Q3 2023.
  • Surplus capital estimated at $3.5 billion.
  • Allows Scotiabank to support dividend payments.
  • In November 2022, Scotiabank announced plans to repurchase up to 24 million shares.
  • Demonstrates confidence to return capital to shareholders.

Financial Performance Supports Dividend

  • Scotiabank reported Q3 2023 revenue of $7.4 billion, up 6% year-over-year.
  • Net income of $1.35 billion, decrease of of 1.9% from Q3 2022.
  • The international banking division saw double-digit loan and deposit growth.
  • Efficiency ratio improved to 55.7% from 56.5% last year.
  • Reflects good expense control and operating leverage.

Why Scotiabank’s Dividend Remains Safe

There are several reasons why Scotiabank’s dividend remains secure and should continue growing slowly:

  • Strong capital and liquidity position provides stability.
  • Low payout ratio gives flexibility to maintain dividend during downturns.
  • Diversified business mix mitigates risk.
  • Long track record through multiple economic cycles.
  • Focus on cost management supports profit margins.
  • International operations have growth tailwinds as emerging markets develop.

Consensus Price Targets Signal Upside

  • Scotiabank has a consensus analyst price target of $68.00 per share.
  • Represents 39.7% upside from the current market price.
  • 15 out of 17 analysts rate BNS stock as a buy or hold.
  • If shares trade up to the average target, the dividend yield would be 4.6% based on the current payout.

Is Bank of Nova Scotia a Good Dividend Stock?

Scotiabank offers an attractive high yield of 6.4% backed by a very safe dividend with immense longevity. The payout is easily covered by earnings and supported by a strong capital position.

Investors seeking passive income can expect steady payouts from this Canadian banking giant. The dividend should continue growing through a combination of modest increases and natural expansion as earnings grow over time.

For income investors, Scotiabank remains a top Canadian dividend stock pick heading into 2024. The high yield, dividend security, and potential for capital gains make this a compelling long-term holding.

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