When it comes to picking great investments, few investments in Canada can rival the big bank stocks. Apart from their reliable and defensive ability to generate recurring revenue, the big banks can provide a generous and growing passive income stream.
That’s just one reason why Bank of Nova Scotia (TSX: BNS) is a solid fit for any investor seeking a passive-income stream.
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Why Scotiabank?
Scotiabank may not be the largest or most recognized of the big bank stocks, but it is the most international. Incredibly, that international presence gives Scotiabank an edge over its big bank peers.
That’s because Scotiabank generates an increasing amount of revenue from international markets where growth rates are often higher than in the more mature markets.
This, in turn, lets Scotiabank invest further in growth initiatives while also paying out a generous quarterly dividend (more on that in a moment).
In recent years, Scotiabank has shifted its focus away from developing markets in Latin America to more mature markets such as the U.S. and Mexico. This move aligns with Scotiabank’s international focus while also providing some additional defensive appeal in the face of market volatility.
That international focus is great, but it shouldn’t deter investors looking to establish a passive-income stream from also considering Scotiabank’s domestic footprint.
Like its big bank peers, Scotiabank operates a large domestic branch network that blankets the country. That domestic network also provides the bulk of Scotiabank’s revenue, which in turn feeds that international growth and dividend.
In the most recent quarter, Scotiabank earned $2.5 billion, reflecting a solid bump over the $1.9 billion reported in the prior period. The domestic and international segments injected $959 million, and $712 million into that total, respectively.
What about income?
One of the main reasons why investors love investing in the big banks and, by extension, Scotiabank is for the dividends that the company offers. Scotiabank has paid out a quarterly dividend for over 190 years without interruption.
Today, that dividend works out to an appetizing yield of 4.6%. For those investors seeking a passive-income stream, that initial $1,000 investment won’t be enough to retire on, but it will be enough to start building a long-term portfolio.
In case you’re wondering, that $1,000 will generate dividends to purchase roughly half a share through reinvestments. Here’s where it gets interesting: Augment that initial $1,000 annual spend for a few years more, and then those dividend reinvestments really begin to grow.
Adding to that appeal is the fact that Scotiabank has provided investors with annual increases to that dividend going back years. This fact makes Scotiabank an ideal option for investors looking to build a passive income stream.
Furthermore, investors who are not ready to draw on that income yet can opt to reinvest those dividends, allowing any eventual income to continue growing on its own.
Your passive income stream awaits
Building a passive-income stream takes the right investments, time, and a lot of patience. And while no investment is truly without risk, Scotiabank is one of a handful of companies on the market today that offers both defensive appeal, growth, and income-earning potential.
In my opinion, Scotiabank should be a core holding in any well-diversified long-term portfolio.
Buy it, hold it, and watch your passive income stream grow.
