Bank of Nova Scotia's (TSE:BNS) Shareholders Will Receive A Bigger Dividend Than Last Year

The Bank of Nova Scotia (TSE:BNS) will increase its dividend on the 29th of July to CA$1.10, which is 3.8% higher than last year's payment from the same period of CA$1.06. This makes the dividend yield about the same as the industry average at 5.7%.

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

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Bank of Nova Scotia has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Bank of Nova Scotia's last earnings report, the payout ratio is at a decent 86%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, EPS is forecast to rise by 65.9% over the next 3 years. Analyst estimates also show the future payout ratio being 57% in the same 3 years which brings it into quite a comfortable range.

See our latest analysis for Bank of Nova Scotia

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. Since 2015, the annual payment back then was CA$2.64, compared to the most recent full-year payment of CA$4.24. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Bank of Nova Scotia's earnings per share has fallen at approximately 4.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Bank of Nova Scotia is a great stock to add to your portfolio if income is your focus.

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. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 12 analysts we track are forecasting for the future. Is Bank of Nova Scotia not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.