The Bank of Nova Scotia (TSX:BNS) is one of Canada’s Big Six banks and a top option many investors continue to choose to put their capital to work in for a number of reasons.
Scotiabank’s innovative spirit, strong financial results, and strategic initiatives have led to solid long-term growth. But as the chart above shows, the company’s performance over the past five years (and past year or so) has lagged the market. For this reason, many investors ignore the upside this dividend stock can provide from a capital appreciation perspective (it should be noted that returns for investors are still positive over the past five years thanks to the company’s dividend). But we’ll get to that.
Here’s why I still think Scotiabank is likely the best option for investors seeking exposure to the Canadian banking sector right now.
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Strategic diversification and international presence
Since its founding in 1832, Scotiabank has grown into a significant global financial organization serving more than 25 million clients globally. Because of its global approach, especially in Latin America and the Caribbean, it has been dubbed “Canada’s most international bank.” This diversification takes advantage of the expansion of emerging markets while reducing the impact of economic swings at home.
In February 2024, Scotiabank established Cedar Leaf Capital, the first indigenous-owned investment dealer in Canada, in collaboration with Indigenous development corporations. This project, which improves Indigenous communities’ access to investment and infrastructure development, demonstrates the bank’s dedication to inclusive growth.
Strong financial performance
Scotiabank’s stock chart really tells a different story than its core fundamentals, which point in the right direction.
In 2024, Scotiabank brought in record net income, 6% year-over-year revenue growth and earnings per share (EPS) of $6.47. This EPS number is more than double the company’s $2.98 dividend distribution (good for a yield of more than 6%) and is driven by solid ROE of 11.3%.
With a strong balance sheet indicated by the company’s 13.1% tier 1 capital ratio, Scotiabank has proven to be one of the most fundamentally sound banks worth considering. Of course, various recession fears and other concerns around the Canadian banking sector have derailed investor focus of late.
But the company’s diverse revenue streams driven by international banking have continued to be Scotiabank’s core growth driver. Indeed, over the past year, the company saw its international division grow double digits, with a 15.7% return on equity. And with Global Wealth Management continuing to be a key driver as well, there’s a lot to like about where Scotiabank is headed from here.
Can this stock rally over the long term?
I do think there are plenty of headwinds for investors to consider in the Canadian banking sector overall. That said, I do think this sector is one that will likely continue rewarding long-term investors seeking solid total returns.
Scotiabank stock won’t need to do much in the way of capital appreciation for investors to win. This stock could stay relatively stagnant, and investors would still earn a return of more than 6% from dividends alone. On that front, this company remains a top dividend stock I think is worth considering as a way to play declining bond yields over time.
And with the Bank of Canada looking to cut continuously moving forward, I do think there’s going to be more upside ahead for bond proxies like BNS stock. For now, my outlook on this bank remains the same. I’m bullish on where Scotiabank is headed from here.
