BNS Stock: Buy, Sell, or Hold Position?

In the dynamic world of stock markets, Bank of Nova Scotia (TSX:BNS) has caught the attention of investors, exhibiting a commendable 15% uptick since late October of the previous year. As the stock climbs, the burning question on many investors' minds is whether BNS is still undervalued and holds potential for further gains. In this analysis, we'll explore the current state of Bank of Nova Scotia's share price, delve into the factors influencing its trajectory, and assess its viability for inclusion in self-directed investment portfolios, particularly Tax-Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs) focused on dividends and total returns.

Bank of Nova Scotia Share Price Overview

Presently trading near $64, Bank of Nova Scotia's stock has experienced a noteworthy recovery from its 12-month low of approximately $55 per share. Despite this positive momentum, it remains distant from the peak it reached about two years ago, hovering around $93 following the market crash in 2020.

The recent fluctuations in BNS stock can be attributed, in large part, to the impact of rising interest rates. Over the past two years, both the Bank of Canada and the U.S. Federal Reserve have implemented rate hikes to address inflation concerns. With inflation surpassing 8% in Canada and 9% in the United States in June 2022, the central banks aimed to curb economic activity and spending on discretionary goods and services by increasing borrowing costs.

Navigating the Impact of Interest Rates

While the rise in interest rates has prompted concerns and contributed to the decline in bank stocks over the past 24 months, it is crucial to acknowledge the delicate balance central banks must maintain. Striking a balance between curbing inflation and avoiding a deep recession is essential, given the potential consequences of a rapid increase in interest rates.

Bank of Nova Scotia and its peers have responded to the changing economic landscape by raising provisions for credit losses (PCL). Despite this precautionary measure, economists anticipate a short and mild recession, emphasizing the overall resilience of the loan book and a gradual decline in inflation rather than a drastic economic downturn.

Bank of Nova Scotia's Financial Health

Bank of Nova Scotia remains a robust and profitable institution, reporting an adjusted net income of $8.4 billion in fiscal 2023. The bank anticipates a marginally better performance in 2024, supported by strategic initiatives such as staff cuts, reducing expenses by about 3% of the workforce.

Looking ahead, Bank of Nova Scotia's new CEO is committed to enhancing returns for shareholders. The focus includes growth investments in key markets such as Canada, the United States, and Mexico. Additionally, there is a strategic evaluation of operations in Chile, Peru, and Colombia, with the possibility of divestment if turnaround efforts do not yield the desired results.

Dividends and Investor Returns

One of the key attractions for investors in Bank of Nova Scotia is its commitment to shareholder returns. The bank recently increased its dividend, signaling confidence in its profit outlook. As of now, investors can enjoy a robust 6.6% dividend yield, emphasizing the attractiveness of BNS stock for income-focused portfolios.

Conclusion: The Potential Upside of BNS Stock

While ongoing volatility is anticipated in the stock market, Bank of Nova Scotia appears positioned as an attractive opportunity for investors. The combination of a compelling dividend yield, a focus on strategic growth, and the overall stability of the bank's financial health makes BNS stock an intriguing candidate for a buy-and-hold portfolio.

Investors holding BNS stock may consider maintaining their positions, while new investors might find the current valuation appealing, presenting an opportunity to initiate positions and potentially add more during market pullbacks. The journey ahead may witness fluctuations, but Bank of Nova Scotia seems poised to offer value and potential gains as the market navigates through the next phase of recovery.