Most investors don't strike it rich overnight, and if they do there's a good chance that the sudden good fortune won't last. The best way to find long-term success on Wall Street is to do it methodically and slowly, picking companies that have strong business plans that will grow their operations over time.
With a dividend yield of roughly 5%, The Bank of Nova Scotia (BNS 0.98%) also has an attractive business positioned for long-term success. Here's what you need to know about this high-yield dividend stock.
Boring at the center
Bank of Nova Scotia is one of the largest banks in Canada. Its business dealings in Canada make up around two-thirds of the company's earnings. This is important because Canada has a highly regulated banking sector. The largest players, which include Bank of Nova Scotia (the No. 3 bank in the country), have massive market shares that are basically protected by all the regulations. That's not to suggest that there's no competition, but it would be hard to displace one of the big Canadian banks, and big bank mergers are frowned upon.
The Canadian influence is notable, in that the bank has a strong tier-1 capital ratio of 12%. This number basically provides insight into how well a bank can handle adversity, and 12% is fairly strong -- Bank of America's ratio is 10.4%. Adding to the allure here, Bank of Nova Scotia, unlike some of its U.S. peers, didn't end up cutting its dividend during the Great Recession. In fact, it has increased its dividend in 43 of the last 45 years. It has clearly managed adversity well over time, while also managing to reward investors via a growing dividend.
The exciting piece of the story
For more conservative investors, Toronto-Dominion Bank (TD -0.47%) would probably be a better fit than Bank of Nova Scotia, because TD Bank's business is spread across Canada and the United States. But while TD Bank has room to grow in the U.S. market, long-term investors have to go in knowing that the U.S. is a mature country, and that limits the company's growth potential. That's why more aggressive types with long time horizons might prefer Bank of Nova Scotia, which has modest exposure to the United States (6% of earnings) and a fairly material presence in South America (nearly 30% of earnings, combined).
The list of countries in which Bank of Nova Scotia operates includes Mexico (where it's the fifth-largest bank in the country), Chile (third-largest bank), Peru (third-largest bank), and Columbia (sixth-largest bank). These are some of the most important economies in the region, and offer more attractive long-term growth opportunities than more developed markets like Canada and the United States. To be fair, Bank of Nova Scotia isn't the leading player in any of these nations, which makes sense given that it hails from Canada. But that just means there's more room for growth as it expands its business in each of these countries and others (like Brazil). Notably, using the bank gives residents of these countries access to banking in the United States and Canada should they travel northward for some reason.
There's no question that operating in emerging markets increases risk, which is partly why Bank of Nova Scotia's yield is so high. For reference, TD Bank's dividend yield is a far more modest 3.8%. But there is a risk/reward trade-off here, since operating in emerging markets is likely to provide more growth potential over the long term than TD Bank's U.S. exposure. And it's not like Bank of Nova Scotia is ignoring the U.S. market.
If you have a strong stomach
With investors worried about a recession, it might not be easy to jump on a higher-risk name like Bank of Nova Scotia. That's understandable -- but if you have a long-term focus, its mix of a solid Canadian operation and a growing South American business is unique, and offers notable growth appeal. If you are the buy-and-hold type, this is a name that could stay in your portfolio for a very, very long time, rewarding you with dividend income and business growth.