TSX Domination: The 5.4% Dividend Stock to Watch

Bank of Nova Scotia (TSX:BNS) stock’s dividend isn’t just large; it’s safe and well-covered!

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The 4% rule — a rule of thumb that suggests retirees should average a 4% dividend yield with their investment for retirement passive income — seems to be a tad too restrictive in the era of high interest rates. Of course, rates are bound to come down from here, perhaps in a matter of months. In any case, the Bank of Canada is in no rush, leaving rates unchanged in its latest meeting.

Undoubtedly, the TSX Index finished the day up around 0.3% anyway, indicating that investor hopes for a March rate cut were not in the cards. However, as we move into the summer months, the odds of a rate cut could increase. Undoubtedly, any such rate cuts could help various battered TSX stocks gain ground, all while their dividend yields look to compress, bit by bit, closer to historical norms.

In any case, we’ll check out one dominating TSX stock that is in a rut now but has shown signs of life in recent months. I believe the name is a solid blue-chip that’s rich with value and dividends!

Without further ado, enter Bank of Nova Scotia (TSX:BNS), a Canadian bank stock that sports a 6.31% dividend yield at writing. It’s more generous than the average yield of its Big Six peers, thanks in part to the beatdown the stock has endured in recent years.

More recently, the stock has been gaining, with newfound momentum helping BNS stock surge over 23% from last year’s lows. After a very respectable round of quarterly numbers (far better than some of its banking peers) in the books, I think BNS stock has the means to continue its rally, if not back to all-time highs (of around $83 and change per share), perhaps close to the $70 levels over the near term.

Just how good were Bank of Nova Scotia’s latest results?

They weren’t blowout numbers by any stretch. However, they were good enough to kick off a bout of relative outperformance relative to the pack in recent weeks. Indeed, BNS has been quite the banking laggard in recent years, but the tides have turned, at least for the moment. I think Canada’s most international bank could have a bit more outperformance in the cards as Bay Street looks to warm up to the unloved banking play once again.

After topping first-quarter (Q1) estimates, Bank of Nova Scotia stands to be in the running for a few analyst upgrades. In a prior piece, I gave the bank’s Q1 results a mild round of applause. Not only were the numbers impressive, but they could imply the dividend is on some pretty rock-solid footing.

The 6% dividend yield is incredibly robust

Yes, the dividend yield isn’t as high as it was just a few months ago, at just north of the 6% mark. However, that’s still impressive for an $82 billion blue chip that’s shown signs it can do relatively well in the face of industry headwinds.

I have no idea when provisions and other headwinds will fade into the background. However, for now, I think it’s wise to bet on the firms that can effectively move forward in the face of a chilly breeze. For now, that’s the Bank of Nova Scotia.

And after upbeat numbers, I’d not be afraid to be a net buyer for shares for that juicy dividend. In a year’s time, my bet is that the yield will be closer to 5% than 6%. Perhaps I’ll do a follow-up piece on the bank in around a year from now. Stay tuned, Fools!

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. The Motley Fool has a disclosure policy.

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