Bank of Nova Scotia (TSX:BNS) chalked up big gains in the past six months and recently hit a new record high. Investors who missed the rebound are wondering if BNS stock is still attractive for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and long-term total returns.
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Bank of Nova Scotia share price
BNS trades near $97 per share at the time of writing compared to $63 at the low point of the tariff rout in April. The rebound now has the stock back above the $93 high it hit in early 2022 before going into an extended decline that saw the share price slide as low as $55 in the fall of 2023.
The surge in the past few days came as investors cheered news that Bank of Nova Scotia received final approvals to sell its operations in Colombia, Panama, and Costa Rica. The bank announced the deal early this year as part of a strategy transition that will see Bank of Nova Scotia shift its growth program from Latin America to focus more on the United States and Canada.
Last year, Bank of Nova Scotia spent US$2.8 billion to acquire a 14.9% stake in KeyCorp, an American regional bank. The deal provides Bank of Nova Scotia with a platform to expand its presence in the U.S. market. Scotiabank’s stock price underperformed its large Canadian peers for several years, largely as a result of its decisions to bet on Latin America rather than targeting the U.S. market.
At home, Bank of Nova Scotia has identified British Columbia and Quebec as regions of interest for expansion. The company created a new senior executive role last year to focus specifically on targeting growth in the Quebec market.
Management is also focused on making the bank more efficient by streamlining operations and reducing expenses through job cuts. The turnaround process will take time, as Bank of Nova Scotia is a large company, but the bank appears to be on the right track.
Cuts to interest rates in Canada and the United States have fuelled a rally in the bank sector in the past year. This will reduce borrowing expenses for businesses and households that are carrying too much debt. As a result, provisions for credit losses should decrease in the coming quarters.
Risks
Tariffs imposed by the United States could start to drive up inflation in 2026 as companies that built up inventory ahead of the tariffs are forced to restock at higher prices. This could lead to a rebound in inflation while also triggering an economic slowdown. In the event that unemployment spikes and the central banks keep interest rates at current levels, or potentially move them higher to contain inflation, the banks could face new headwinds.
Time to buy?
Near-term volatility should be expected. Bank of Nova Scotia and the broader overall market have chalked up big gains in a short period of time, so a pullback is likely in the coming months. That being said, investors can still get a solid 4.5% dividend yield from BNS stock, and the long-term prospects should be attractive as the bank continues its strategy transition.
Existing owners of the stock should probably sit tight. For new investors, I wouldn’t back up the truck today, but dividend seekers might want to take a small position for the good yield and look to add on any weakness.
