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BCE Inc. vs. The Bank of Nova Scotia: Which Is the Best Dividend Investment?

BCE Inc. (TSX: BCE)(NYSE: BCE) and The Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) have rewarded investors for years with strong dividend growth and capital appreciation. Each stock pays a dividend that yields more than 4% right now and new investors might be wondering which one is a better choice.

Let’s take a look at both companies to see if one deserves to be in your portfolio.

BCE Inc.

Canada’s largest telecommunications company has changed dramatically in the last decade. The boring old telephone utility grandma held for the consistent dividends is now a dynamic media and communications giant. As the company widens its moat through strategic acquisitions and investment in state-of-the-art technology, grandma is still enjoying solid returns.

BCE recently announced it is buying Glentel Inc., a wireless device retailer with stores in Canada, the U.S., and Australia. The $594 million deal helps strengthen BCE’s retail footprint across the country ahead of the possible arrival of a new national competitor.

Earlier this year, BCE spent $4 billion to take its Bell Aliant subsidiary private. The move will provide cost synergies as the two companies become fully integrated and the truckloads of free cash flow that previously went out as big dividends to Bell Aliant shareholders are now available for investors in BCE.

Last year, BCE dropped another $3.4 billion to buy Astral Media. The deal added a wide variety of media and advertising assets, including lucrative pay TV channels in Quebec.

BCE pays a dividend of $2.48 that provides a yield of 4.7%. Shareholders should see continued increases to the payout on an annual basis as the new assets add revenue and free cash flow.

The Bank of Nova Scotia

The Bank of Nova Scotia dropped a little bomb on investors recently by announcing a huge restructuring of its Latin American operations. The company then reported lower-than-expected quarterly earnings and warned of tougher times in 2015.

Concerns about a Canadian housing bubble continue to build and money appears to be rotating out of the financial sector as investors lock in some profits and look for other places to park their cash.

With the recent pullback in the stock, The Bank of Nova Scotia is now trading at 11 times earnings, which is a significant discount to its peers. The company pays a dividend of $2.64 per share that yields 4%.

Which should you buy?

As long-term investments, both The Bank of Nova Scotia and BCE are great holdings. At the moment, BCE looks like a better bet for dividend growth investors, as the company is more likely to increase its payout next year. The telecom companies are benefitting from a sector rotation out of energy and the trend could continue right into the first half of 2015.

The Bank of Nova Scotia is certainly cheaper right now and further weakness in the stock should be seen as a good buying opportunity.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

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