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Bank of Nova Scotia: 2 Reasons to Own This Top Dividend Stock Now

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has been underperforming for the past six months when you compare its stock performance with Canada’s other top lenders. The biggest contributor to this poor showing was the fourth-quarter earnings, which came in below than analysts’ expectations.

I think this dip is a good opportunity for investors to get a hold of this top dividend stock with a rock-solid dividend. Here is why.

Growing global reach

Unlike other lenders, Bank of Nova Scotia has been growing its international operations in emerging markets where the potential is huge.

The Pacific Alliance — an economic bloc consisting of on Mexico, Peru, Chile, and Columbia — is proving to be a great bet and a source of diversification away from the matured Canadian market for the lender.

In a recent presentation to investors, CFO Sean McGuckin said the region is likely to contribute 30% to the bank’s total revenue over the next three years, up from 23% now. The bank’s Canadian business, which currently accounts for 52% of total revenue, is likely show growth in line with the trends.

Canada’s third-biggest lender also updated its medium-term growth objectives, saying it expected to generate earnings-per-share growth of 7% or above. The bank re-affirmed its return-on-equity target of 14% or above.

Dividend growth

Finding stocks that pay a market-beating dividend yield isn’t difficult, but finding a stock that pays a dividend every year since 1832 isn’t easy. Bank of Nova Scotia is a stock you can count on for a regular income stream for many years.

The bank not only pays dividend, but it’s also a great dividend-growth story. It’s hiked its payouts in 43 of the last 45 years — one of the most consistent records for dividend growth among major Canadian corporations.

Investors got two dividend hikes from this lender last year, growing its payout about 7%. I expect a more robust growth going forward at a time when the bank is expected to generate $7-8 billion of excess capital by 2020.

“This level of capital provides optionality to consider ongoing dividend increases, share buybacks, organic growth opportunities, and further acquisitions,” McGuckin told investors in the same presentation.

 The bottom line

Trading at $80.74, Bank of Nova Scotia is down ~6% from the 52-week high. This dip offers an opening for long-term income investors who want to benefit from the lender’s robust growth potential and growing payouts. With a 3.79% dividend yield and $3.05 a share annual payout, Bank of Nova Scotia is a solid banking stock to play the strength of Canadian economy.

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 Haris Anwar has no position in the companies mentioned.

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