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Banks provide what amounts to a necessity service in today’s connected world.
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The Great Recession proved that some banks are more resilient than others.
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If you are looking to maximize your dividend income, this ultra-high-yield bank should be on your short list.
Banks aren’t supposed to be exciting. They are supposed to provide basic services that help the world function on the financial front. Boring is good, but it often doesn’t lead to a stock that has an ultra-high dividend yield. That said, Bank of Nova Scotia (NYSE: BNS) is boring enough to buy but “exciting” enough to have a lofty dividend yield. Here’s why you might want to jump on this ultra-high-yield bank if you have $10,000 to invest right now.
Bank of Nova Scotia, which generally goes by the nickname Scotiabank, isn’t particularly different from most other large banks. It provides customers with the basics, like bank accounts, checking accounts, and mortgages. It deals with business customers, too. But on top of that it also adds things like wealth management and investment banking. In this way it not only competes with local banks, but also with giants like Bank of America or Citigroup.
That said, there’s a key difference here that is important to keep in mind. Scotiabank hails from Canada. Canadian banking regulations are very stringent, leading the largest of the country’s banks, of which Scotiabank is one, to have entrenched industry positions. The heavy regulation has also resulted in Canadian banks having a conservative ethos that permeates all aspects of their businesses. All in, Scotiabank has a very solid business foundation.
The best display of this comes from Scotiabank’s dividend. It has paid a dividend continuously since it started paying a dividend in 1833. That said, the dividend hasn’t increased every single year (more on this below), but it also didn’t get cut during the 2007 to 2009 financial crises. The Great Recession, as that deep recessionary period is known, led both Citigroup and Bank of America to cut their dividends.
So it stands out on the dividend front for its consistency. But it also stands out because of the huge 5.7% dividend yield. For reference, the S&P 500 index (SNPINDEX: ^GSPC) is yielding just 1.2% and the average bank has a yield of 2.5%.
Scotiabank’s yield would suggest that it is a risky bank. And yet its core Canadian operations would suggest the exact opposite. What’s going on? As it turns out, like other Canadian banks, Scotiabank has looked to foreign markets for growth. Most of its peers chose to focus on the U.S. market, but Scotiabank sought to differentiate itself by focusing on Central and South America. That didn’t work out quite as well as hoped.
