Bank of Nova Scotia (TSX:BNS) is down about $10 per share since early December. Investors are wondering if BNS stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
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Bank of Nova Scotia stock
Bank of Nova Scotia trades near $70.50 at the time of writing. The stock is still up 10% over the past 12 months but has been under pressure due to its recent earnings results.
Bank of Nova Scotia just reported fiscal first-quarter (Q1) earnings that actually came in above analyst estimates. Adjusted net income for fiscal Q1 2025 came in at $2.36 billion compared to $2.21 billion in the same period last year. Diluted earnings per share rose to $1.76 from $1.69. Return on equity slipped slightly to 11.8%. These are decent results.
The market, however, is responding negatively to the increase in the bank’s provisions for credit losses (PCL) in the quarter compared to the same period last year, as well as in comparison to fiscal Q4 2024. This is money the bank sets aside to cover potential losses on loans that it deems at risk of default.
PCL came in at $1.162 billion in the latest quarter. That’s up from $962 million in fiscal Q1 2024 and $1.03 billion in fiscal Q4 2024. PCL is starting to decline at some of the other big Canadian banks, so the increase is causing some concern among investors.
Bank of Nova Scotia is working through a strategy transition that will see the bank shift capital away from the Latin American businesses to the United States and Canada. This process is already underway. Bank of Nova Scotia spent US$2.3 billion in 2024 to purchase a 14.9% stake in KeyCorp, a regional bank in the United States. The bank also created a new senior executive role last year to focus on expanding Bank of Nova Scotia’s presence in Quebec.
Bank of Nova Scotia has significant operations in Mexico, Peru, and Chile. It recently sold its businesses in Colombia, Costa Rica, and Panama and booked an impairment loss of $1.355 billion on the deal.
Bank of Nova Scotia finished fiscal Q1 2025 with a common equity tier-one (CET1) ratio of 12.9%. This is a solid capital position that should enable the business to ride out some turbulence or make additional strategic investments.
Risks
Trade policy from the new U.S. administration could cause economic disruption in Canada and Mexico in the coming months. Donald Trump is planning to implement 25% tariffs on goods entering the United States from the two countries. Prolonged tariffs at this level could push the Mexican and Canadian economies into a recession. This would likely put pressure on Bank of Nova Scotia, due to its large presence in both markets.
Should you buy BNS stock now?
Near-term volatility should be expected, so I wouldn’t back up the truck. That being said, contrarian investors seeking income might want to start nibbling at this level and could look to add to the position on additional downside. At the current share price, investors can get a dividend yield of 6%, so you’ll get paid well to wait for the turnaround.
