TSX’s financial services sector has struggled in 2025. Only two of the Big Six banks are in positive territory at the close of the third quarter. However, looking on the bright side, income-focused investors have buying opportunities. Canada’s banking sector is a bedrock of stability. Historically, the sector has recovered remarkably from economic downturns, market meltdowns, and financial crises.
Today, Bank of Nova Scotia (TSX:BNS) or Scotiabank is the cheapest at $68.36 per share but pays the highest dividend at 6.2%. Also, the average dividend-growth rate for the past three years is 19.47%. Despite the -10.2% year-to-date loss, the 193-year dividend track record gives you the confidence to invest. Prospective investors can expect pension-like income, if not lifetime income.
Navigating the headwinds
Tariffs and navigating the uncertainty they bring are ongoing concerns of businesses in 2025, including financial institutions. Scotiabank, Canada’s fourth-largest lender by market cap, is prepared to contain tariff hits. According to its chief risk officer, Phil Thomas, the $85.1 billion bank would build provisions in the second quarter (Q2) if tariffs take effect.
In Q1 fiscal 2025, provision for credit losses (PCL) rose 20.79% to $1.16 billion from a year ago. However, due to higher PCL, net income in three months ending January 31, 2025) declined 55% to $993 million compared to Q1 fiscal 2024. Only recently, the $426 million net income in Q4 fiscal 2024 was a record for BNS.
Portfolio simplification
Scott Thomson, president and chief executive officer (CEO) of Scotiabank, said the first-quarter results demonstrate the value of the diversified franchise. “We are encouraged by the progress towards our stated medium-term financial objectives and remain focused on supporting our clients as they navigate through this challenging period of economic uncertainty,” he added.
When Thomson became CEO in 2023, he promised to refocus on more profitable North American markets. The plan to simplify the International Banking portfolio is an initiative that should generate additional profitability. Scotiabank has scaled back in Latin America and exited retail banking in Colombia, Costa Rica, and Panama. Commercial banking operations in Colombia will remain but only as a management hub providing international banking advice to large private corporations.
Shift to developed markets
The Canadian bank has shifted from developing to developed markets in North America. In late December 2024, Scotiabank completed the additional investment in U.S.-based regional bank KeyCorp and raised its ownership stake to 14.9%.
“Our investment in KeyCorp represents a cost-effective, low-risk approach to deploying capital into the U.S. while boosting returns for our shareholders,” said Thomson.
On March 25, 2025, Scotiabank announced that Pablo Elek, formerly with HSBC Holdings, will be the new CEO of its Mexican unit. Scotiabank has the fourth-biggest loan portfolio in Mexico.
Good entry point
Scotiabank is appealing to investors with long-term horizons, given its depressed share price. The potential for recovery is inevitable because of the de-risking strategy, reduced exposure to underperforming businesses, and shift to more profitable markets. A $20,000 investment in BNS today will produce $310 in quarterly income for life if you don’t sell.
