Stock Analysis

Bank of Nova Scotia (TSE:BNS) Is Increasing Its Dividend To CA$1.03

TSX:BNS
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The Bank of Nova Scotia's (TSE:BNS) dividend will be increasing to CA$1.03 on 27th of July. This takes the annual payment to 4.6% of the current stock price, which is about average for the industry.

See our latest analysis for Bank of Nova Scotia

Bank of Nova Scotia's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Bank of Nova Scotia's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 3.5%. 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.

historic-dividend
TSX:BNS Historic Dividend June 2nd 2022

Bank of Nova Scotia Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from CA$2.08 to CA$4.12. This means that it has been growing its distributions at 7.1% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Bank of Nova Scotia Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Bank of Nova Scotia has impressed us by growing EPS at 5.8% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Bank of Nova Scotia's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Bank of Nova Scotia's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 12 analysts we track are forecasting for Bank of Nova Scotia for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.