Why Bank of Nova Scotia Is the Dividend Stock Your TFSA Needs

While adding a bank to your TFSA may seem like a no-brainer, don’t overlook Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), with its strong overseas acquisitions strategy.

| More on:
The Motley Fool

It’s that time of year again, when Tax-Free Savings Account (TFSA) investors start looking at their holdings and getting back on the investment train. If you are a TFSA investor (and if you’re not, this is a good time of year to start thinking about it), then you may be looking to add a financial powerhouse to your portfolio if you don’t already hold one.

A dividend yield you can rely on, year after year

With per-share growth set to hit 7% in its mid-term forecast, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is at the top of its game when it comes to solid dividend yields. What’s more, it has an unblemished past annual performance in this respect, meaning that you can rely on yearly payouts. This may make Scotiabank a more solid investment choice than some of its smaller, undervalued competitors.

Add to this the bank’s constructive management style and bold acquisition strategy, the latter of which is helping to diversify its already solid asset base. A good recent example is the 51% acquisition of, and partnership with, Peru’s Banco Cencosud. A true international player, Scotiabank is a key financial institution in the Pacific Alliance and is present in all four of its member states.

In a volatile market, looking to market beaters is just good common sense

With a steady income growth through international expansion, Scotiabank is a market-beating stock to hold on to through a volatile period that looks set to hang around for the foreseeable future.

If potential investors need a single hook to pull them in, it might be that having access to a nice percentage of Latin American banking customers means good news for investors when quarterly corporate earnings roll around. All told, Scotiabank has 24 million customers spread across the personal, commercial, corporate, and investment banking sectors. That’s a pretty solid income base right there.

The only (slight) caveat is that South American economies can be a little more turbulent than the Canadian one, Scotiabank represents a relatively risk-free buy for your TFSA. If you haven’t started tax-free investing yet, this is a great way — and a great time — to start. With zero tax penalties for withdrawals and super-easy depositing, padding your TFSA with solid defensive stocks like this one makes sense.

Buy now or keep holding out a little longer?

While shareholders wait to hear Scotiabank’s second-quarter results, newcomers to the fold can help themselves to a slightly undervalued stock, which sits at a lower buying price than many of the other big high-street lenders. Recent underperformance has helped to bring the stock within reach of more timid investors and, in so doing, has produced a mid-term growth opportunity worth going for.

The alternative is to wait and see what happens to prices over the next few weeks. Keep a close eye on sales prices and time it carefully, just in case share prices fall at the end of the month after second-quarter earnings are announced.

The bottom line

With a consistent moderate-to-strong-buy analysis across the board, Scotiabank is a dividend stock that is worth holding on to; perhaps it’s even a lifelong stock. Spreading itself across overseas markets has seen the bank’s asset base broaden and diversify in a way that competing lenders struggle to match.

The best way to handle this stock is to buy it, forget about it, and enjoy having a heavy-hitting dividend payer working for you in the background of your TFSA.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in the companies mentioned.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »