Bank of Nova Scotia (TSE:BNS) Will Pay A Dividend Of CA$1.06

The Bank of Nova Scotia (TSE:BNS) will pay a dividend of CA$1.06 on the 28th of April. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.

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If the payments aren’t sustainable, a high yield for a few years won’t matter that much.

Bank of Nova Scotia has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Bank of Nova Scotia’s payout ratio of 84% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 59.3%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 55% over the same time period, which would make us comfortable with the sustainability of the dividend.

View our latest analysis for Bank of Nova Scotia

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was CA$2.56, compared to the most recent full-year payment of CA$4.24. This means that it has been growing its distributions at 5.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The company’s investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren’t as good as they seem. It’s not great to see that Bank of Nova Scotia’s earnings per share has fallen at approximately 6.1% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.