Bank of Nova Scotia (TSX:BNS) is up about 30% from its 52-week low, but there’s still an incredible opportunity to capitalize on this gold mine. With a staggering dividend yield of nearly 6.2%, this stock offers a lucrative passive income stream — perfect for savvy investors seeking to enhance their diversified portfolios with reliable returns. Don’t miss out on the chance to benefit from the dividend tax credit; act now to secure your shares before the next big dividend payout with an ex-div date of October 2!
Bank of Nova Scotia’s recent performance
In the latest fiscal report, Bank of Nova Scotia posted a 5% revenue increase, reaching $25.1 billion. This was largely driven by a 5.4% rise in net interest income, totalling $14.3 billion, and a 4.5% increase in non-interest income, which reached $10.8 billion.
Despite these positive figures, the bank faced challenges, including a 39% surge in provisions for credit losses (PCL) (which is money set aside in an environment of heightened credit risk) and a 5.9% rise in non-interest expenses. As a result, net income grew modestly by less than 2% to $6.1 billion, and diluted earnings per share declined slightly by 1.5% to $4.66.
Long-term growth potential
Looking ahead, Bank of Nova Scotia has significant potential for substantial returns through a multi-year turnaround. Currently, the stock has underperformed compared to its Canadian banking peers, with the sector (using BMO Equal Weight Banks Index ETF as a proxy) doubling BNS’s returns over the past decade, as shown in the graph below. However, the bank’s strategic moves signal a promising future.
BNS and ZEB Total Return Level data by YCharts
For instance, Scotiabank recently announced the acquisition of a 14.9% stake in KeyCorp, a deal poised to close in fiscal 2025, pending regulatory approval. This acquisition is expected to be accretive to earnings by $300 to $350 million, which would represent a 4% boost to the bank’s earnings. Additionally, it could enhance returns on equity by 0.45%, marking a positive step in the right direction.
Strategic expansion and operational efficiency
Currently, Scotiabank generates more than 40% of its revenues from international operations, primarily in Latin America. Its focus on expanding in higher-growth (but higher risk) emerging markets could unlock substantial revenue potential and drive overall performance improvements. With effective execution of its growth strategy, coupled with enhanced operational efficiency and cost control, the bank could be well-positioned for increased earnings growth and stability.
The Foolish investor takeaway
Scotiabank’s stock is currently trading 14% below its multi-year high of around $80 per share, indicating a promising upside potential of approximately 16%. More importantly, a successful multi-year turnaround could deliver impressive total returns with a compound annual growth rate of 11-14% over the next five years.
What investors are getting is a high-yield dividend stock with significant growth potential. Secure your shares of Bank of Nova Scotia today and position yourself for exceptional returns prospects and a steady income stream. For example, a $10,000 investment would make approximately $617 in passive income a year, showcasing the blue-chip stock’s strong income-generating capabilities.
