With today's announcement and subsequent sell off, the dividend for BNS is now 7.4%. Normally the big Canadian bank yields are in the range of 4-5%. Assuming there is no dividend cut, then for the yield for BNS to get back to...say 5%...from its current 7.4%, then the stock price "should" eventually have to appreciate by a corresponding 48% (7.4 / 5.0).
What are your thoughts about simply buying and/or holding BNS for the current 7.4% yield and eventual capital appreciation...resulting in a total return of roughly 50+% over the next # years? This makes the big assumptions of a) NO dividend cut...but no big Canadian bank has cut it's dividend since WW2 and b) the new CEO can lead a turn around.
Thanks...Steve
National Bank did cut its dividend in 1992, but the Canadian bank dividend record is indeed very solid. We highly doubt BNS will get into a position where the dividend is at risk. The new CEO will outline plans in two weeks. Keep in mind the CEO doesn't have that much direct bank experience (other than being on BNS's Board of Directors). We think BNS can be accumulated for income investors. Whether the bank executes a quick turn may not be so important if interest rates fall and investors start buying dividend stocks again. We would caution though against 'expecting' gains in the 50% range. A Canadian recession is still possible, and while we would expect it to be mild, sentiment towards the sector can mute potential returns in such a case.