Stock Analysis

Bank of Nova Scotia (TSE:BNS) Is Due To Pay A Dividend Of CA$0.90

TSX:BNS
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The Bank of Nova Scotia (TSE:BNS) will pay a dividend of CA$0.90 on the 27th of October. The dividend yield will be 4.6% based on this payment which is still above the industry average.

View our latest analysis for Bank of Nova Scotia

Bank of Nova Scotia's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Bank of Nova Scotia was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 9.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

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TSX:BNS Historic Dividend September 23rd 2021

Bank of Nova Scotia Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CA$1.96 in 2011 to the most recent annual payment of CA$3.60. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings per share has been crawling upwards at 4.8% per year. Bank of Nova Scotia is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Bank of Nova Scotia's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Bank of Nova Scotia is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 Bank of Nova Scotia analysts we track are forecasting continued growth with our free report on analyst estimates for the company. We have also put together a list of global stocks with a solid dividend.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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