All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Based in Toronto, Bank of Nova Scotia (BNS) is in the Finance sector, and so far this year, shares have seen a price change of 7.79%. The bank is currently shelling out a dividend of $0.79 per share, with a dividend yield of 3.98%. This compares to the Banks - Foreign industry's yield of 2.8% and the S&P 500's yield of 1.42%.
Looking at dividend growth, the company's current annualized dividend of $3.16 is up 2.9% from last year. Over the last 5 years, Bank of Nova Scotia has increased its dividend 3 times on a year-over-year basis for an average annual increase of 2.35%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Bank of Nova Scotia's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BNS expects solid earnings growth. The Zacks Consensus Estimate for 2026 is $6.03 per share, with earnings expected to increase 19.17% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers its shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BNS is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of #3 (Hold).
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Bank of Nova Scotia (The) (BNS): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).