Enbridge (TSX: ENB) operates a diversified energy infrastructure business with more than 200 assets. About 98% of its earnings come from regulated operations and long-term take-or-pay contracts, and about 80% benefit from inflation-indexed mechanisms. This resilient business model reduces its exposure to commodity price volatility and broader macroeconomic uncertainties, supporting stable earnings and predictable cash flows.
Backed by these solid fundamentals, Enbridge has delivered a total shareholder return of over 850% over the past two decades, or an annualized return of about 11.9%. The company also boasts an impressive dividend track record, having paid dividends since 1953 and increased its annual payout for 31 consecutive years. It currently offers an attractive forward dividend yield of 5.7%.
Despite these strengths, Enbridge has faced selling pressure recently, with its share price declining 15.6% from its May highs. Concerns over potentially higher interest rates, which could increase financing costs for its capital-intensive operations, along with persistent regulatory and legal uncertainties surrounding its Line 5 pipeline, appear to have dampened investor sentiment. Although Enbridge’s resilient business model and attractive dividend yield support its long-term investment appeal, these near-term uncertainties could continue to weigh on its stock performance.
Against this backdrop, I believe Bank of Nova Scotia (TSX: BNS) offers a more compelling buying opportunity, supported by improving operating and financial performance, a strengthening balance sheet, and an increasingly favourable business outlook.
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BNS’s business outlook and growth prospects
Scotiabank provides a broad range of financial services across multiple geographic markets, generating revenue from diversified business segments. This diversified operating model supports relatively stable earnings and cash flows across economic cycles. Over the past two decades, Scotiabank has delivered a total shareholder return of approximately 585%, representing an annualized return of 10.1%. The bank also boasts an impressive dividend track record, having paid dividends since 1833 and increased its payout at an annualized rate of 4.5% over the last decade. It currently offers an attractive forward dividend yield of 3.5%.
Meanwhile, elevated oil prices could sustain inflationary pressures, prompting central banks to remain cautious about easing monetary policy. A prolonged period of relatively higher interest rates could support Scotiabank’s net interest margins, although elevated borrowing costs could also weigh on loan demand. Additionally, the bank is optimizing its business portfolio by expanding its more profitable North American operations while reducing exposure to less profitable Latin American markets. This strategic realignment could enhance operational efficiency, improve profitability, and strengthen earnings quality over time.
Furthermore, Scotiabank expanded its share repurchase authorization from 15 million to 40 million shares and had already repurchased about 13 million shares as of August 31. The expanded program could reduce its outstanding share count by about 3.3% from its March starting level, potentially supporting earnings-per-share growth and enhancing shareholder value.
Given its diversified revenue streams, strategic growth initiatives, improving operational performance, and commitment to shareholder returns, I believe Scotiabank is well positioned to deliver sustainable long-term growth and is an attractive investment at current levels.
Investors’ takeaway
Supported by its strong financial performance and improving investor sentiment, Scotiabank has delivered an impressive year-to-date total shareholder return of 35.6%. Despite this rally, the stock still trades at a reasonable forward price-to-earnings mutliple of 14.1, suggesting its valuation may not fully reflect its growth prospects. Given its improving fundamentals, encouraging growth outlook, and reasonable valuation, I believe Scotiabank is well-positioned to maintain its upward momentum in the coming quarters, making it a more compelling investment opportunity than Enbridge, which continues to face near-term headwinds.
