Citigroup (C -2.45%) is a popular U.S. bank with an attractive 2.8% yield. But what if you could get more than twice that yield without taking on a huge amount of risk? That's exactly what I did when I doubled my position in this Canadian banking giant. The trigger for my investment was the company's return to dividend growth with a 4% hike announced after it reported earnings for its fiscal second quarter of 2025. Here's why you might want to follow along if you have $25,000, or even just $500, to invest.
What does a bank do?
Banks like Citigroup can be complex, but the core of the operation is usually pretty simple. They take in deposits and make loans. Customers include individuals and businesses. That's usually the foundation of even the largest banks. On top of that they layer more complex businesses, like wealth management or investment banking. Generally speaking, this creates a fairly solid business and one that provides necessary services.
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But sometimes banks get out over their skis, which is exactly what happened to Citigroup during the Great Recession. The bank ended up taking a government bailout and cutting its dividend. It wasn't alone, a lot of major U.S. banks did the same, including Bank of America. Some smaller banks got so extended in the housing crisis that they had to sell themselves, usually to larger banks like Citigroup and Bank of America.
This situation turned me off from the U.S. banking system and turned me on to Canada's highly regulated banking system. I own Toronto-Dominion Bank and Bank of Nova Scotia (BNS -0.01%). I just upped my stake in Bank of Nova Scotia, which is usually just called Scotiabank, after the company returned to dividend growth following a turnaround year. It has a 5.9% dividend yield, which is more than double what you'd get from Citigroup.
To put some dollars and cents on that, $25,000 worth of Citigroup stock nets you an annual income stream of $700. The same investment in Bank of Nova Scotia brings in around $1,475.
What does Bank of Nova Scotia do?
Bank of Nova Scotia is one of the largest banks in Canada, largely offering basic banking services. Canadian banks tend to be operated in a very conservative manner because of the heavy banking regulation in the country. This has, effectively, provided the biggest banks with entrenched industry positions. As one of the largest banks, Bank of Nova Scotia has a rock solid business foundation in its home country. This is not true of U.S. banks, where competition tends to be pretty fierce.
The big highlight for me on the Canadian side of the border was the fact that Bank of Nova Scotia (and Toronto-Dominion Bank) maintained its dividend through the Great Recession. I'm confident that Scotiabank will keep paying a reliable dividend, too, noting that the company has paid a dividend every single year since 1833. That's nearly 200 years!
The one big problem with Scotiabank is that it has chosen a different path when it comes to growth. Most of its peers have pushed into the U.S. market. Scotiabank focused on growing its business in Central and South America. That didn't work out as well as hoped and it changed gears, with plans to increase its presence in the U.S. market while refocusing on key Central and South American markets. It basically wants to provide a seamless banking experience from Mexico, though the United States, and on to Canada. The revamp resulted in management holding the dividend steady in 2024 as it shifted gears.
In 2025 the bank provided the big update I was looking for with the dividend increase. Management and the board is clearly comfortable enough with the progress they have made to resume dividend increases. That tells me all I need to know, because there was no need to hike the dividend yet. It was a choice meant to signal financial strength at a business that is starting to shift in a new direction.
Bank of Nova Scotia still has more work to do
To be honest, the fiscal second quarter wasn't the best one for Scotiabank. Adjusted net income, adjusted earnings, and return on equity all fell year over year. The core Canadian operations were particularly weak as the company materially increased its reserves for bad debt. But that's a preemptive move to ensure it remains financially strong. And exactly what I would expect from a conservatively run bank.
The really big news is that Bank of Nova Scotia is confident in the success it is achieving with its turnaround. The high yield is paying me well to stick by a relatively conservative bank as it continues to shift in a new business direction. And the dividend increase was enough to get me to double down. But for dividend investors with $500 or $25,000, the end result of going with Scotiabank over a U.S. bank like Citigroup is dramatically more income.
