Bank of Nova Scotia (BNS -1.16%) is offering investors a nearly 3.5% yield. The average bank's yield is around 2.2%, and the S&P 500 index (^GSPC -0.38%) has a tiny 1% yield. If you are looking for a high-yield bank stock, Scotiabank, as it is more commonly known, is probably worth a close look. But the real dividend story is about consistency. Here's what you need to know.
Bank of Nova Scotia has shifted gears, but not changed its dividend policy
Recently, Scotiabank made a major change in its business. For a long time, the Canadian bank had skipped the U.S. market, focusing instead on Central and South America. That differentiated it from its large Canadian peers, which had focused on growth in the U.S. Scotiabank's plans didn't work out as well as hoped, so it shifted gears. Now, like its peers, it is increasing its focus on the U.S., with a goal of offering its services from Mexico to Canada. Those three countries are contiguous and important trading partners.
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What's notable is that Scotiabank has made this shift without resorting to a dividend cut. In fact, the biggest impact that dividend investors felt was a one-year pause in dividend increases. When you look at the company's history, however, that makes total sense. Scotiabank has paid dividends every year since 1833, over 190 years ago. And, unlike many of the largest U.S. banks, it also didn't cut its dividend during the Great Recession.
Scotiabank's efforts to grow in the U.S. market will likely be a net positive, but the real story here isn't about growth. This is a slow-and-steady business that will help you build wealth over time. Dividend reinvestment would allow for powerful compounding, given the above-average yield and incredible dividend history. The real story, then, is consistency, which is powered by the bank's Canadian operations.
NYSE: BNS
Key Data Points
Canada's banking system is highly regulated. That has left Scotiabank with a fairly conservative corporate culture and provides it, along with a small number of other large banks, with a protected market position. So its efforts outside of Canada are building atop a strong foundation. That foundation is so strong that Scotiabank was able to materially change its corporate direction without a major impact on the dividend.
When it comes to dividends, slow and steady can be very exciting
Will Bank of Nova Scotia make you rich? Perhaps, but certainly not quickly. This is the type of company you buy and hold for the long term because it has a fundamentally strong business. If you give it long enough, it can be a powerful wealth builder when included in a diversified income portfolio.
