We Wouldn't Be Too Quick To Buy The Bank of Nova Scotia (TSE:BNS) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Bank of Nova Scotia (TSE:BNS) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Bank of Nova Scotia investors that purchase the stock on or after the 1st of April will not receive the dividend, which will be paid on the 26th of April.

The company's upcoming dividend is CA$1.06 a share, following on from the last 12 months, when the company distributed a total of CA$4.24 per share to shareholders. Looking at the last 12 months of distributions, Bank of Nova Scotia has a trailing yield of approximately 6.2% on its current stock price of CA$68.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Bank of Nova Scotia can afford its dividend, and if the dividend could grow.

View our latest analysis for Bank of Nova Scotia

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Bank of Nova Scotia paid out 68% of its earnings to investors last year, a normal payout level for most businesses.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Bank of Nova Scotia's earnings are down 2.5% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Bank of Nova Scotia has lifted its dividend by approximately 5.5% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Has Bank of Nova Scotia got what it takes to maintain its dividend payments? We're not overly enthused to see Bank of Nova Scotia's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Bank of Nova Scotia doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering Bank of Nova Scotia as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for Bank of Nova Scotia you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.