Gold is the coolest kid on the block. In the last 12 months, the spot price of the shiny metal has appreciated a whopping 22%. However, it has been a pretty horrible long-term investment.
In the past decade, its price appreciation was only 38%, which equated to growth of 3.6% per year, just more or less keeping pace with inflation.
Worse still, most people don’t stash their gold bullion at home. They may store it in a safety deposit box for safekeeping, and that costs money. Additionally, gold generates zero cash flow.
You’ll likely find much more satisfaction investing in Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) for income and greater total returns.
Scotiabank
Scotiabank’s Canadian business is highly secure and sound thanks to regulations and the oligopoly structure of Canada’s Big Six banks. The bank earns consistent returns on equity of more than 13% year after year for its shareholders.
It is once again offering a mesmerizing yield of 5%, which is at the high end of its 10-year yield range.
BNS Dividend Yield data by YCharts. BNS stock’s dividend yield history over 10 years.
The bank’s earnings from its Canadian business alone more than covers its generous dividend with earnings leftover. Canada makes up 55% of its earnings, while its payout ratio is about 49% of this year’s estimated earnings.
On top of BNS stock’s succulent yield, its price-to-earnings ratio of about 9.9 confirms that it’s a wonderful value — specifically, a discount of approximately 20% from its long-term normal multiple!
Other than stable growth from its Canadian business, Scotiabank should also enjoy long-term growth from its international businesses — primarily, the Pacific Alliance countries and the United States, which make up 23% and 9%, respectively, of its earnings.
Since I revealed gold’s decade-long returns, it’s only fair that I also disclose BNS stock’s. In the past decade, Scotiabank’s stock price climbed 53%. Additionally, it provided steady cash flow for its shareholders with its safe dividend. Price appreciation and dividend income resulted in total returns of about 99%, or annualized returns of 7.1%.
Even better, shareholders could have reinvested the dividends elsewhere or back into the stock. If they did the latter, total returns would have been about 9% per year.
Gold vs. Scotiabank
If you ask me to choose between buying gold bullion and BNS stock today, I’d certainly pick Scotiabank. I’m 100% sure that a long-term investment in the bank will deliver greater returns.
More importantly, it provides trustworthy dividends, which is real cash that I can use to pay the bills or reinvest back into my stock portfolio.
Buying $69,500 (the 2020 TFSA contribution room) worth of BNS stock in your TFSA today will generate annual passive income of $3,475 for starters.
