Dividend Investors: Should You Buy BCE (TSX:BCE) or Bank of Nova Scotia (TSX:BNS) Stock?

Bank of Nova Scotia (TSX:BNS) and BCE (TSX:BCE) both look cheap today. Which stock is a better bet right now for dividend investors?

| More on:

Canada’s top dividend stocks fell significantly during the initial sell-off in the TSX Index. A rebound over the past two months wiped out many of the best deals, but some leading stocks still offer dividend yields that haven’t been seen since the Great Recession.

Opportunity

Dividend yields of 6-8% on world-class stocks are rare. In fact, anything above 7% is normally reserved for businesses the market thinks will be forced to trim the payout due to cash flow and balance sheet issues.

Leading banks and communications providers traditionally command healthy multiples. In recent weeks, however, the uncertainty surrounding the economic recovery has put pressure on these stocks. Most trade above the March lows, but still appear cheap right now.

Let’s take a look at Bank of Nova Scotia (TSX:BNS) (NYSE:BNS) and BCE (TSX:BCE) to see if one deserves to be on your dividend buy list today.

Bank of Nova Scotia

Bank of Nova Scotia just reported better-than-expected fiscal Q2 2020 results. The bank earned $1.37 billion in adjusted net income for the three months that ended April 30.

The company continues to maintain a strong capital position with a CET1 ratio of 10.9%.

Provisions for credit losses (PCLs), which indicates loans that might go bad, jumped in the quarter due to the impact from the pandemic lockdowns. Bank of Nova Scotia set aside $670 million for the Canadian banking operations and $1 billion for the international banking group.

The speed and extent of the economic recovery will determine whether the bank sees losses that meet these levels. For the moment, nobody knows how the recovery will evolve.

Bank of Nova Scotia’s dividend should be very safe. The stock jumped 6% on the better-than-expected Q2 results, but still trades at a cheap price and offers a 6.5% dividend yield.

At the time of writing, investors can buy the stock for $55 per share. Bank of Nova Scotia traded at $74 in February.

BCE

BCE trades at $55 per share right now and offers a 6% dividend yield.

The company operates world-class wireless and wireline networks across Canada providing mobile, internet, and TV services. BCE also owns a media division that includes sports teams, a television network, specialty channels, and radio stations.

Media companies are struggling with a plunge in advertising revenue as companies reduce expenses to preserve cash flow while their businesses remain closed. In addition, sports leagues are just still trying to figure out how to resume operations.

Despite the media challenges in the near term, BCE remains a steady pick for dividend investors. The wireless and wireline services remain robust and plan upgrades and new streaming subscriptions should help offset some of the weakness in other areas.

BCE’s distribution should be rock solid and you get paid well to wait for the economic recovery to pick up pace.

Is one a better buy?

Bank of Nova Scotia enjoyed a nice bounce on the earnings report. While the stocks still looks cheap over the long haul, there is a risk that the market might be getting ahead of itself given the uncertainties on potential loan defaults once deferrals and government aid measures expire in the coming months.

At this point, I would probably make BCE the first pick and look to add Bank of Nova Scotia on a pullback.

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.

The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker owns shares of BCE.

More on Dividend Stocks

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Here’s the Average TFSA Balance at Age 44 in Canada

You can invest your TFSA in funds like the BMO Canadian High Yield Dividend ETF (TSX:ZDV) to grow the balance.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

The Best Telecom Stock to Buy Before 2025

Choosing the safest stock from a decimated sector can be tricky, but if there is a reasonable chance of full…

Read more »