Stock Analysis

Bank of Nova Scotia's (TSE:BNS) Dividend Will Be CA$1.06

TSX:BNS
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The Bank of Nova Scotia's (TSE:BNS) investors are due to receive a payment of CA$1.06 per share on 29th of July. This makes the dividend yield 6.6%, which will augment investor returns quite nicely.

See our latest analysis for Bank of Nova Scotia

Bank of Nova Scotia's Dividend Forecasted To Be Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Having distributed dividends for at least 10 years, Bank of Nova Scotia has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 70%, which means that Bank of Nova Scotia would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 26.1% over the next 3 years. Analysts estimate the future payout ratio will be 61% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

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TSX:BNS Historic Dividend May 31st 2024

Bank of Nova Scotia Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was CA$2.48 in 2014, and the most recent fiscal year payment was CA$4.24. This implies that the company grew its distributions at a yearly rate of about 5.5% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Bank of Nova Scotia's earnings per share has shrunk at approximately 2.5% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Bank of Nova Scotia's Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Bank of Nova Scotia that investors should take into consideration. 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.