How Reinvesting This 1 Dividend Could Snowball Over Time

Scotiabank (BNS) stock offers Canadian banking’s top yield at 3.5%. Here’s how quarterly dividend compounding can snowball your returns over time.

Key Points
  • The Bank of Nova Scotia (TSX:BNS) offers a sector-leading 3.5% dividend yield, outperforming other major Canadian bank stocks currently paying between 2.5% and 2.8%.
  • A recent operations pivot triggered impressive quarterly earnings recently, and a new $100 billion 5-year investment commitment in Canada doubles down on a home-grown growth.
  • Reinvesting dividends quarterly alongside projected annual dividend hikes could grow an initial position by more than 20% without accounting for stock price appreciation.

Canadian bank stocks have long been solid, reliable sources of passive income – some for more than 100 years! But recently, they’ve rallied a bit too fast, reducing their dividend yields to mostly below 3%. Before you run a dividend stock screen to confirm, the only Big Five bank stock offering a slightly better yield for new money at writing is the Bank of Nova Scotia (TSX: BNS), or Scotiabank stock.

Other bank stocks will pay between 2.5% and 2.8% in dividend yields today. If you wish to add a bank stock to your dividend portfolio, Scotiabank stock stands as a better-yielding passive income investment. Reinvesting its 3.5% dividend could create a massive snowball effect for your portfolio over time.

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BNS stock’s impressive earnings performance

The Bank of Nova Scotia is in growth hyper-drive after recently refocusing operations from high-risk emerging markets to North America. All its business lines generated strong earnings results during the third quarter of Fiscal Year 2026, exceeding management’s expectations.

During the bank’s most recent quarter, Scotiabank grew adjusted net earnings by 18.1% to nearly $3 billion, up from $2.5 billion during the same period last year. Adjusted earnings per share (EPS) surged 21.3% year over year, while the bank’s quarterly return on equity (ROE) – a crucial measure of profitability to shareholders – increased to 14.2%, up from 12.4% a year ago.

BNS is evidently doing so well financially in 2026, and this explains the impressive 39% capital gains on the stock over the past six months.

Scotiabank doubling down on growth

Banks generally grow with the economies they fund. The Bank of Nova Scotia is doubling down on its North America growth focus with a staggering $100 billion commitment to its home economy over the next five years.

Through the Scotia Growth Institute, which is focused on Canada’s long-term economic growth and competitiveness, the bank has committed more than $100 billion in financing, underwriting, and investment for Canadian companies and projects in key growth sectors over the next half-decade. The commitment, announced September 14, includes skills and talent building in high-growth sectors, innovation, and artificial intelligence (AI).

Revenue and earnings growth will support growing quarterly dividends to shareholders.

The dividend snowball: How reinvesting BNS’s dividend grows capital

Assuming constant stock prices, you can technically grow your new BNS stock position by 3.5% every year simply by fully reinvesting quarterly dividends. However, the rate of growth will be slightly higher if you don’t wait until year-end to reinvest dividends.

Reinvesting dividends every quarter increases the frequency of compounding. The dividend you reinvest during the first quarter will earn dividends during the second, and even more by the fourth quarter!

Let’s see the math. A $10,000 investment in Scotiabank stock at recent prices of $129.60 per share would start with roughly 77.16 shares. With the current dividend at $1.14 per share every quarter, here is what your first two years of a Dividend Reinvestment Plan (DRIP) would look like by 2028.

(The table assumes a $10,000 investment, a constant share price at $129.60, and that you are able to reinvest in fractional shares. It also factors in a 3% dividend raise by Q3 2027 and Q3 2028).

QuarterStarting SharesDividend/ShareDividend ReceivedNew Shares AcquiredEnding SharesTotal Position Value
2026 Q477.160$1.14$87.960.67977.839$10,087.96
2027 Q177.839$1.14$88.740.68578.524$10,176.70
2027 Q278.524$1.14$89.520.69179.215$10,266.21
2027 Q3 (3% Hike)79.215$1.17$93.010.71879.932$10,359.23
2027 Q479.932$1.17$93.860.72480.657$10,453.09
2028 Q180.657$1.17$94.710.73181.387$10,547.79
2028 Q281.387$1.17$95.560.73782.125$10,643.36
2028 Q3 (3% Hike)82.125$1.21$99.320.76682.891$10,742.68

Stock prices will change, distorting the picture a bit. However, higher dividend growth rates may accelerate the snowball effect.

A five-year outlook

Scotiabank is establishing some level of consistency in raising its dividends annually, having raised its quarterly dividend by 3.6% in 2026 and by 3.8% in 2025.

So, how much could the new BNS stock investment position grow over five years? Assuming Scotiabank raises dividends by 3% every year over the next five years, your share count will snowball significantly. By the end of the fifth year, your initial 77.2 shares could have grown to nearly 93 shares.

At a constant share price of $129.60, your adjusted total position value would be around $12,052.80, for a total return of 20.5% purely from the compounding power of quarterly dividends. This completely ignores any potential upside in Scotiabank’s share price.

Investor takeaway

A 3.5% yield might appear small at first glance, but when combined with consistent annual dividend hikes and the magic of quarterly compounding, it turns into a significant wealth-builder over the long term.

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.

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