Bank of Nova Scotia (TSX: BNS) is up about 17% in the past three months. Investors who missed the rebound off the April pullback are wondering if BNS stock is still 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 price
Bank of Nova Scotia trades near $75 per share at the time of writing. The stock has been on a wild ride over the past year. It soared from $62 last August to $80 in late November before going into an extended slide through the first quarter (Q1) this year that gave back most of the gains.
The share price is still well below the $93 it reached in early 2022. Other large Canadian bank stocks have outperformed Bank of Nova Scotia over the past five years, with gains of 70% to 115% compared to Bank of Nova Scotia’s gain of 35%.
A new CEO took control of the bank in 2023 with the goal of driving better shareholder returns. Bank of Nova Scotia is now working through a strategy transition that will see the bank invest more growth capital in the United States and Canada while pivoting away from Latin America, where the bank spent billions of dollars on acquisitions over the past three decades.
The bank has a large presence in Mexico, Peru, and Chile. These markets arguably offer attractive growth potential as the middle class expands and demand rises for loans and investment products. Economic and political volatility, however, make these markets riskier bets than the United States. Uncertainty on trade negotiations between the United States and its trade partners, particularly Mexico, could be a headwind for Bank of Nova Scotia in the near term. Bank of Nova Scotia sold its operations in Colombia, Panama, and Costa Rica in early 2025. The bank took an impairment loss of close to $1.2 billion on the sale. This might have triggered the decline in the stock in the first part of this year. Investors will want to keep an eye on any additional sales of international operations in the region.
In 2024, Bank of Nova Scotia started to boost its presence in the United States through its US$2.8 billion deal to buy a 14.9% stake in KeyCorp, an American regional bank. The move gives Bank of Nova Scotia a platform to expand in the American market. The other large Canadian banks have invested in U.S. assets to varying degrees over the past few decades. This is likely one reason they have outperformed Bank of Nova Scotia, although not all of the U.S. bets have turned out to be winners.
Earnings
Bank of Nova Scotia delivered stable fiscal Q2 2025 results. Adjusted net income was largely in line with the same quarter last year. Adjusted return on equity (ROE) slipped to 10.4% from 11.3%. Adjusted diluted earnings per share (EPS) dipped to $1.52 from $1.58. Provisions for credit losses (PCL) rose to $1.4 billion from $1.01 billion in fiscal Q2 2024. This was a common theme among the large Canadian banks in the quarter, as elevated interest rates continue to put pressure on commercial and personal banking clients with too much debt. Bank of Nova Scotia finished fiscal Q2 with a common equity tier-one ratio of 13.2%, so the bank has ample capital on hand to ride out market turbulence.
The board raised the dividend by 4% for 2025. Investors who buy BNS stock at the current level can get a dividend yield of 5.9%.
Time to buy?
Investors should expect more volatility in the coming months until there is clarity on the trade negotiations between the U.S. and its neighbours. That being said, contrarian investors might want to start nibbling on BNS stock at this level and look to add on new weakness. Existing owners of the stock should probably hold on at this point. You get paid a good dividend yield, and there is decent upside potential as the bank works through its turnaround plan.
