The Motley Fool

Should Bank of Nova Scotia Be a Part of Your 2018 TFSA Portfolio?

Canadian investors are searching for reliable dividend stocks to add to their TFSA retirement funds.

Their strategy makes sense, especially when the distributions are invested in new shares. This launches a powerful compounding process that can turn a modest initial investment into a nice nest egg over the course of a few decades.

When the time comes to cash out, all the capital gains are tax-free.

Let’s take a look at Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to see why it might be an interesting pick right now.

International focus

Bank of Nova Scotia has invested billions in recent years to build a strong international presence, focusing mainly on Mexico, Peru, Colombia, and Chile.


These four countries form the core of the Pacific Alliance trade bloc, which was set up to enable the free movement of goods and capital among the member states.

Together, the countries make up a market of more than 200 million consumers.

As the middle class grows, demand for loans and investment products should increase, and Bank of Nova Scotia is well positioned to benefit.

In addition, companies that move into new markets need a variety of cash management services. Bank of Nova Scotia’s presence in the four key countries puts it in a strong competitive position.

Strong earnings

Bank of Nova Scotia continues to generate strong results. Fiscal 2017 net income came in at $8.24 billion compared to $7.37 billion in 2016.

The international operations stole the show, delivering $2.4 billion in earnings, representing a 15% increase over the previous year.


Bank of Nova Scotia has a strong track record of dividend growth. The company raised the payout by 6% in 2017, and investors should see steady gains continue in the coming years.

The current distribution provides an annualized yield of 3.8%.

Should you buy?

Bank of Nova Scotia isn’t as cheap as it was at the beginning of 2016, but the stock still trades at a lower P/E multiple than its larger Canadian peers.

As investors get more comfortable with the growth potential in Latin America, Bank of Nova Scotia’s multiple could rise.

If you have some money on the sidelines and are looking for a reliable buy-and-hold dividend play with exposure to emerging markets, Bank of Nova Scotia deserves to be on your radar.

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

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