Generating a superior income is something that all investors aspire to. Unfortunately, finding the right investments to generate a decent income stream can be challenging for some investors.
That’s where market opportunity comes into play. There’s no shortage of great stocks on the market that can provide a juicy income. Even better, many of those superior income stocks now trade at a discount thanks to the market volatility we’ve seen this year.
One of those great stocks which can provide a superior income for years is Bank of Nova Scotia (TSX:BNS)
First, why invest in the big banks?
Canada’s big banks are almost always perceived as great long-term investments. There are several good reasons why the big banks and Scotiabank, in particular, are great picks right now.
The banks generate a stable revenue stream thanks to a mature domestic segment at home. They also provide a source for dividend income that has paid out without fail for nearly two centuries. And finally, they are a source of long-term growth through international expansion.
Another key point to consider is timing. Scotiabank, like much of the market, is trading down this year. As of the time of writing, the bank is down 12% over the trailing 12-month period.
That also means that Scotiabank trades at a P/E of just 9.5, which has also swelled its dividend (more on that in a bit).
In short, Scotiabank is a great option for prospective investors looking to establish a superior income or long-term growth.
Where is that growth potential?
The Canadian banking market is both mature and saturated. As a result, the big banks have turned to international markets for long-term growth. For most, that translates into expanding into the U.S. market.
In the case of Scotiabank, however, the bank chose to look further south to Latin America.
Specifically, the bank expanded into the markets of Mexico, Columbia, Chile and Peru. Those four nations are members of a trade block known as the Pacific Alliance. The Alliance is tasked with improving trade between its members and reducing tariffs.
Scotiabank’s prominent branch network in each bloc nation helped to establish it as a trusted, recognizable partner in the region. It also provided Scotiabank with impressive growth from its international segment.
Prospective investors should remember that emerging markets such as the Pacific Alliance member states can provide higher growth potential. That potential also comes with higher risk, which is part of the reason why Scotiabank has traded lower than some of its peers.
That potential for a superior income stream is huge
One of the main reasons why investors continue to flock to the big banks and Scotiabank, in particular, is for dividend income. In the case of Scotiabank, that dividend currently carries an insane 6.95% yield, making it one of the better-paying dividends on the market.
To illustrate that superior income potential, let’s consider a $40,000 investment in Scotiabank (as part of a larger well-diversified portfolio). For that initial outlay, investors can expect to generate an income of just shy of $2,800.
Keep in mind that investors who aren’t ready to draw on that income can reinvest it until needed. This can provide substantial growth over the longer term, bumping any eventual income further.
Oh, and let’s not forget that Scotiabank, like all of its big bank peers, provides investors with decent annual bumps to that dividend.
That fact alone is reason enough for long-term investors to consider buying Scotiabank right now.
