Buy, Sell, or Hold Bank of Nova Scotia Stock?

Holding onto promising stocks is usually the safest bet in shaky markets. But sometimes, selling at the right time or buying more can yield excellent results.

Adam Othman ❯

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published August 27, 2024 4:30 pm EDT

The TSX has a solid selection of reliable Dividend Aristocrats from multiple sectors, many offering a decent, even a generous yield. You can create a solid passive-income portfolio in your Tax-Free Savings Account (TFSA) entirely out of Dividend Aristocrats, with a healthy combination of capital-appreciation potential and dividends.

Even though they hail from several different sectors, the Canadian banks, particularly the Big Six banks, stand out for a reason. All six are Aristocrats and have been paying dividends for decades (some have been paying them for over a century). The yields are usually good, and payouts are generally financially stable.

The banking institutions are pretty stable and adhere to a conservative business model, making them resilient against weak markets.

However, not all of the Big Six banks are equally attractive on all accounts, and as the bank stock with the most generous yield, Bank of Nova Scotia (TSX:BNS) is an excellent example of this variety.

The bank

It’s the second oldest banking institution in the country, and by early next decade, it will be two centuries old. Its original scope of services was limited to maritime provinces in Canada, but it soon became a national and later an international banking institution. It has an impressive international presence, and more than a third of its net income comes from its international operations.

It’s different from other Canadian banks that have a heavy presence in the U.S., and instead, a solid chunk of its income (about 25%) comes from Mexico, South America, and the Caribbean. It’s also investing heavily in digital banking, and Tangerine Bank, one of the largest digital-only banks in Canada, is its subsidiary.

The stock

Bank of Nova Scotia is currently one of the most heavily discounted banks in the Big Five, trading at around 29% of its post-pandemic peak. While not ideal from a performance perspective, this discount has beefed up the bank’s yield considerably. At nearly 6.5%, the bank is offering the most generous yield among the Big Five, and the next highest yield is more than a full percentage point down.

More importantly, the bank is currently on a recovery journey. The stock has already climbed by about over 6% in less than two weeks. Part of it is the market’s bullish sentiment, but the bank’s healthy valuation (as reflected by the price-to-earnings ratio of 11), its stable dividends, and mouth-watering yield may keep it moving upward.

Foolish takeaway

It’s not wise to sell the bank at this point, and while holding it is still the safest bet, the time is also ripe for buying. The bank is going up, and if it continues this way, the yield will go down.

Buying now may give you the best combination of high-yield and short-term (ideally long-term as well) growth potential. If it maintains its current pace, it is among the best bank stocks you can buy for its short-term growth potential right now.