For years, Canada’s big banks have been cornerstones of income investing. Their reliable dividends and relative stability make them a refuge in turbulent times. And when these stocks dip, seasoned investors see opportunity – not danger.
Right now, Bank of Nova Scotia (TSX:BNS) – also known as Scotiabank – is offering just such a moment. Down roughly 14% from its 52-week high and trading around $69 per share, this dividend giant may be exactly what long-term income investors are looking for.
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A dividend legacy
Bank of Nova Scotia has paid dividends since 1833, and it hasn’t cut its payout in over 50 years. The consistency is remarkable, and while its current yield of nearly 6.2% is above average, it’s also supported. Despite recent headwinds, the bank’s payout ratio is forecast at 74% of diluted earnings and 62% of adjusted earnings in 2025 – leaving room for dividend stability and potential growth in the future.
Over the past decade, the bank’s dividend has grown at an annualized rate of 5.2%. Admittedly, dividend growth has stalled more recently, with the quarterly payout remaining unchanged for eight consecutive quarters. But with its renewed strategic focus, a resumption in dividend growth could be on the horizon.
Strategic shifts under new leadership
The decline in Scotiabank’s share price reflects more than market noise – it’s tied to real challenges. Under CEO Scott Thomson, who stepped in during February 2023, the bank has been reworking its international footprint.
A major pivot came in 2024, when Bank of Nova Scotia invested $2.8 billion to acquire a 14.9% stake in U.S. regional lender KeyCorp. Rather than taking on the risk of a full acquisition, this move gives the bank a low-risk foothold in the U.S. retail banking market, with potential growth and the opportunity to learn more about the space.
The bank also made a tough call by exiting underperforming Latin American markets. In the first quarter of fiscal 2025, it booked a $1.4 billion impairment related to the sale of operations in Colombia, Costa Rica, and Panama. While painful in the short term, the exit allows Scotiabank to refocus on its core North American markets and better streamline its operations.
Buy the dip, reap the yield
Despite these headwinds, Bank of Nova Scotia remains fundamentally strong. Its earnings cover the dividend, and its shift toward more stable and profitable markets could rejuvenate growth. For income investors, the current dip represents a strategic entry point at a reasonable valuation with estimated long-term returns of about 10% per year.
Long-term buyers can lock in an attractive yield today, and if the bank resumes growth, dividend growth would soon follow and the returns could become even more compelling.
If you’re concerned about timing your purchase, consider a dollar-cost averaging approach. Platforms like Wealthsimple make it easy to spread out your investment over several months with zero commissions, reducing your exposure to short-term volatility.
The Foolish investor takeaway
Scotiabank’s short-term stumbles have opened a window of opportunity. For income-focused investors with a long-term view, this Canadian bank stock is well worth a closer look, especially if it experiences further weakness over the next few months.
