TFSA and RRSP Investors: 1 Dividend Aristocrat to Buy as Others Panic

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is a Dividend Aristocrat that’s fallen too hard, too fast in recent months.

| More on:
A worker uses a double monitor computer screen in an office.

Source: Getty Images

Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors must focus on the extremely long term if they wish to build a large and uncrackable nest egg. Undoubtedly, many retirees who’ve embraced the 60/40 portfolio (60% in equities; 40% in bonds) are dealing with some of the worst returns in recent memory.

With rates on the rise, bond prices have been under considerable pressure. Similarly, the equity markets have also taken a spill, with central banks’ hands hovering over the rate-hike button, with another 75-basis-point (bps) hike possible this month, with two 25-bps hikes that could happen by year’s end.

Rates are rising, but fear not

The Fed has made its hawkish tone clear. It’s committed to bringing down inflation, even if the economy needs to take a hit. Though the Fed may decide to cut rates if employment takes too large a hit (remember, the Fed used to be employment focused), there’s a good chance that the Fed could stand pat with rates in the 3-4% range once it’s done fighting off inflation. Indeed, employment has proven quite robust, and if there is a “soft-landing” for the economy, with no recession in the books, the stock markets may have overreacted to the downside.

Indeed, there are brilliant analysts at well-established firms in both the bull and bear camps right now. One group of pundits will look like geniuses a year from now, while you probably won’t hear back from the other group!

It’s hard to be a contrarian at a time like this. And although it’s impossible to tell what the course for inflation is moving forward, going against conventional wisdom, I believe, is key to doing better than the pack. Right now, the pack is running scared. And as a long-term TFSA or RRSP investor, you should treat the volatility as a means to pick up a few pieces of quality merchandise. Now, you don’t need to exhaust your liquidity reserves, but you should think about hitting the buy button here and there, while others pound the sell button.

Bank of Nova Scotia: A Dividend Aristocrat that’s down but not out

The Canadian banks are a fine place to look now that they’ve been dragged into a bear market. Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is an internationally focused Canadian bank that’s been clobbered. It’s now down to $70 and change per share, more than 25% from its all-time high. Fueling the selloff was a quarterly flop (BNS missed earnings by a penny, while revenue was quite flat) and fears of a loan loss surge if a recession strikes next year.

Indeed, international exposure is always risky, especially in the face of a global downturn. However, TFSA and RRSP investors should seek to gain some emerging market exposure in the long run to spruce up returns. Bank of Nova Scotia is a perfect mix of domestic and international banking. Though the massive 25% spill may be just the start of a fiercer selloff, I think there’s a lot to gain by giving the bank the benefit of the doubt.

Shares of BNS trade at 1.3 times price to book, which is well below the banking industry average of around 1.5. With a common equity tier-one ratio of 11.4% (comfortably above the minimum requirement of 10.5%), Bank of Nova Scotia has more than enough financial flexibility to power through a mild recession.

Provision mode is never fun for bank investors. But as we found out in late 2020 and early 2021, surging loan losses can turn into surging profits at the drop of a hat.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

3 Canadian Dividend Stocks to Buy Hand Over Fist

These three Canadian dividend stocks each offer a unique opportunity, making them some of the best investments to buy at…

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Retirement Wealth: 2 Oversold Canadian Stocks to Buy Now and Own for Decades

These industry-leading dividend stocks look cheap right now and have increased their distributions annually for decades.

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Dividend Stocks

2 of the Safest TSX Stocks Right Now

The stock market is heading towards a crash. Investors are seeking the safety of dividends, and these two stocks provide…

Read more »

Payday ringed on a calendar
Dividend Stocks

Want Monthly Passive Income? Try These TSX Dividend Payers

In need of extra cash? These dividend stocks offer passive income each month, and you can pick them up cheap…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Want Safe Passive Income? Here Are 2 TSX Dividend Aristocrats for New Investors

Need some safe passive income? TSX Dividend Aristocrats like Fortis (TSX:FTS) are ideal stocks for new investors to hold in…

Read more »

grow dividends
Dividend Stocks

2 Cheap TSX Dividend Stocks to Buy Now

These top TSX dividend stocks now offer 6% yields.

Read more »

Piggy bank next to a financial report
Bank Stocks

Got $500? Create Passive Income of $500 in Just 33 Years

Only have a bit of cash to invest? By investing in the right stock, you could make $500 in annual…

Read more »

calculate and analyze stock
Dividend Stocks

2 Top TSX Dividend Stocks to Buy Now for a Self-Directed TFSA or RRSP

Top TSX dividend stocks are now trading at attractive prices for TFSA and RRSP investors.

Read more »