Smart Dividend Portfolio Edition #50: Banking on Gains
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Dear Investor,
Welcome to the 50th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: March 3, 2025
Another choppy week saw most stock indexes close in the red despite Friday’s rally. The Dow Jones Industrial Average (DJIA) was the only key U.S. index to register a weekly gain, rising by 0.95%. The S&P 500 (SPX) lost 0.97%, while the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) registered weekly declines of 3.47% and 3.38%, respectively. The latter three capped off their worst week since September.
The last trading week of the winter was highly eventful on the corporate, economic, and geopolitical fronts. The S&P 500, the Nasdaq Composite and the Nasdaq-100 fell for the second week in a row as tariff threats escalated again and technology stocks slipped. Two weekly declines in the second half of the month left all indexes in the red for February. Year-to-date, the technology benchmarks are down, while the DJIA and the S&P 500 are firmly in the green.
Stocks were shaken mid-week by the Consumer Confidence index reading’s decline to a four-year low, which added to the cloudy consumer sentiment reading earlier in the month and stoked further worries about economic growth. Concerns about tariffs were rekindled after President Donald Trump said that levies on imports from Canada and Mexico “will go forward” when a monthlong delay on their implementation expires on March 4th.
Wednesday saw a pick-up in optimism as investors awaited Nvidia’s (NVDA) quarterly results. Although the AI chip leader crushed expectations – as usual – optimism quickly dissipated, and Thursday’s sell-off saw the worst “Magnificent Seven” pull-back of 2025. Given that investors are at their least bullish since 2023, according to the latest AAII Investor Sentiment Survey, it is no surprise that Nvidia’s spectacular revenue surge alone wasn’t enough to lift the spirits, as sentiment continues to be battered by alarming headlines.
Although the second estimate for Q4 GDP confirmed that the economy grew at a solid 2.3% pace, led by consumer and government spending, concerns about future GDP growth persist due to potential government spending cuts and tariffs. However, last Friday’s Core PCE – the Fed’s preferred measure of inflation – offered relief, sending stocks sharply higher. U.S. inflation matched the prior month’s pace and slowed on an annualized basis in January.
Meanwhile, January’s personal income was higher, but personal spending posted a surprise contraction, further weighing on the outlook for economic growth and muddying the economic picture for Federal Reserve policymakers tasked with deciding the best path forward.
Geopolitical tensions also impacted the market. Stocks dipped mid-day after an unprecedented spat in the Oval Office between President Trump and Ukrainian President Zelenskyy, where Trump warned Zelenskyy about “gambling with World War III.” While geopolitical issues tend to have a profound effect on investor confidence, apparently this one was seen as a non-event, with stocks strongly rebounding at the end of the trading day.
With 97% of S&P 500 companies having reported, Q4 2024 earnings season is almost over, and the results have been mostly encouraging. The blended (reported plus estimated) earnings growth has reached 18.2% year-over-year, its highest since Q4 2021 and the sixth consecutive quarter of year-over-year earnings growth. 75% of the companies that have already reported beat EPS estimates, in line with the long-term average.
In Q4, all S&P 500 sectors other than the Energy sector reported earnings growth, with six sectors – Financials, Communication Services, Consumer Discretionary, Information Technology, Utilities, and Health Care – reporting double-digit growth. The fastest earnings growth was registered in the Financials sector, with bottom lines surging by 56%. Banks were the main expansion driver with a 216% surge in earnings year-over-year.
The Communication Services sector followed the lead of Financials with nearly 30% year-over-year earnings expansion. The Consumer Discretionary sector has reported the third-highest earnings growth rate of all eleven sectors, coming in at 27%. However, this result was almost single-handedly produced by Amazon (AMZN), without which the sector’s earnings would have increased at about 5% year-over-year.
Notably, companies that exceeded earnings estimates in Q4 have seen their shares rewarded less than usual by the markets, as investors arrived with high expectations. On the other hand, earnings misses have been punished harder than usual, with underperforming companies seeing larger stock declines than the average for the past five years. Moreover, most of the market attention was tuned to the corporate guidance amid economic uncertainty and elevated valuations.
258 of the S&P 500 companies have issued earnings guidance for the current fiscal year, with 59% of these outlooks featuring an EPS decline. The same percentage of negative earnings guidance was spotted among 98 companies that have provided estimates for the ongoing quarter. Overall, S&P 500 companies forecast 14% earnings growth in 2025, raising concerns that valuations are vulnerable if reported results fall short of their targets.
On the other hand, earnings growth is expected to continue its recent trend of broadening in 2025 and 2026, narrowing the gap versus tech mega-caps. Since earnings growth is the key stock-performance driver over longer time frames, broad EPS growth should improve market balance from a fundamental perspective, supporting further gains (provided there is no significant economic or geopolitical shocks).
Recent Trades
We have decided to sell Edison International (EIX) from our dividend portfolio due to escalating risks tied to its subsidiary, Southern California Edison (SCE). The utility recently informed the California Public Utilities Commission (CPUC) that its equipment may have been involved in two of the deadly wildfires in Southern California earlier this year. While investigations are ongoing, the increasing number of lawsuits and the uncertainty surrounding potential liabilities make this risk too significant to overlook.
Edison International’s management acknowledged on its Q4 earnings call that California’s $21 billion Wildfire Fund could help shield the company’s balance sheet if its equipment is found responsible for last month’s deadly Los Angeles fire. While this fund remains largely untapped by investor-owned utilities like SCE, the complexity of wildfire-related liabilities introduces an element of unpredictability.
Given this risk, and despite our belief that any impact may be temporary, we prefer to avoid even the slightest chance of these developments affecting dividends.
As a result, in place of EIX, we are adding Bank of Nova Scotia (Scotiabank) to our dividend portfolio. With one of the longest-standing dividend payment streaks in the market, Scotiabank has a proven track record of financial stability and consistent shareholder returns.
Let’s look at what makes this banking giant a strong addition to our portfolio.
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This Week’s Quality Dividend Stock Idea
The Bank of Nova Scotia (BNS), aka Scotiabank, is a Canadian1 multinational financial institution providing a wide range of banking and financial services across personal, commercial, corporate, and investment banking. BNS is one of Canada’s largest banks and a key player in the country’s financial sector, with a significant presence in the U.S. and Latin America.
1 – All financial data is in USD. The bank’s shares trade on both Toronto Stock Exchange and NYSE under the ticker “BNS”.
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Legacy of Growth and Global Expansion
Scotiabank was founded in 1832 in Halifax, Nova Scotia, to facilitate trans-Atlantic trade. Over the next century, the bank expanded across Canada, establishing a national presence through strategic mergers and branch openings. In the late 19th century, BNS took its first steps toward international expansion, opening offices in the Caribbean and Latin America, a move that would later become a defining aspect of its business model.
Throughout the 20th century, BNS accelerated its growth by acquiring several financial institutions, strengthening its commercial banking and wealth management segments. In the 1990s and early 2000s, the bank expanded aggressively in Latin America and the Caribbean, establishing itself as a dominant foreign lender in the region. This international strategy helped diversify revenue streams and mitigate reliance on the Canadian market.
Facing evolving market conditions in the 2020s, BNS focused on streamlining operations, divesting non-core assets, and enhancing its core banking and wealth management businesses. Strategic cost-cutting measures and investments in technology positioned the bank for sustained earnings growth.
Today, BNS is Canada’s third-largest bank with a market capitalization of $63.2 billion and annual revenues of over $30 billion. Scotiabank is ranked #291 on the global list of most valuable companies by market capitalization.
Strategic Moves to Strengthen Market Position
Scotiabank has strategically reshaped its international presence over the years, focusing on high-growth and stable markets. In 2018, the bank expanded in Latin America by acquiring a 68.2% stake in BBVA Chile, integrating it into Scotiabank Chile. This move aligned with its strategy to deepen its presence in the Pacific Alliance that is comprised of Chile, Mexico, Peru, and Colombia.
Soon after, in 2019, Scotiabank streamlined its operations, exiting non-core markets by selling its Puerto Rico and U.S. Virgin Islands businesses, allowing the bank to reallocate resources toward more profitable regions.
In 2023, Scotiabank introduced a new enterprise strategy focused on four key pillars: expanding in priority markets, scaling capital-light businesses, deepening client relationships, and streamlining operations. As part of this shift, in January 2025, the bank sold its operations in Colombia, Panama, and Costa Rica to Davivienda, retaining a 20% stake in Colombia’s third-largest bank to leverage future growth opportunities.
To strengthen its Global Wealth Management business, Scotiabank acquired Jarislowsky Fraser in 2018, enhancing its investment management capabilities. It also partnered with Sun Life Capital Management (SLC Management) to expand into private asset solutions.
Additionally, in 2024, Scotiabank acquired a 14.9% stake in KeyCorp, a U.S. regional bank, for $2.8 billion, aiming to boost its North American presence. This strategic investment aims to enhance Scotiabank’s presence in the U.S. market and create future opportunities in the North American corridor.
The bank is now shifting focus to lower-risk geographies in North America, with plans to exit 25 higher-risk markets that contribute less than 10% of its earnings.
Reshaping the Business for Long-Term Success
Scotiabank operates a diversified business model built around four key segments: Canadian Banking, International Banking, Global Wealth Management, and Global Banking & Markets. These segments generate revenue primarily through net interest income, which is the difference between earnings from lending activities—such as mortgages and commercial loans—and interest paid on deposits. Additionally, non-interest income, including fees from wealth management, investment banking, trading, and transactional services, contributes to revenue diversification.
Among its segments, Canadian Banking is the largest, offering personal and commercial banking services, including mortgages, loans, credit cards, and deposits. With a strong domestic presence and stable margins, this segment provides a consistent revenue stream. Meanwhile, International Banking, focused on Latin America and the Caribbean, presents higher growth potential, particularly in markets like Mexico, Peru, and Chile.
Global Wealth Management drives fee-based income from asset management, private banking, and brokerage services. The bank’s acquisition of Jarislowsky Fraser has further strengthened this segment, positioning it for long-term expansion. Similarly, Global Banking & Markets delivers investment banking, corporate banking, and capital markets services, offering expertise in advisory, underwriting, and trading.
Looking ahead, BNS’s earnings outlook remains strong, driven by geographic diversification, disciplined cost management, and digital transformation. Investments in AI-driven banking, mobile solutions, and automation continue to boost efficiency and customer engagement. AI enhances operational efficiency by automating risk assessment, fraud detection, and personalized financial recommendations, reducing costs while improving service quality. Mobile banking innovations streamline transactions, expand digital onboarding, and provide real-time financial insights, increasing accessibility and engagement. Automation in back-office operations accelerates loan approvals, compliance checks, and payment processing, ensuring faster, more seamless customer experiences.
Navigating Market Challenges with Resilience
Scotiabank has maintained profitability despite economic challenges over the past three years. In FY21 and FY22, pandemic-driven economic slowdowns, higher provisions for credit losses (PCL), and rising non-interest expenses weighed on performance. Higher interest rates and economic uncertainty further pressured PCL, affecting clients’ loan repayment capabilities.
By FY23, the bank’s revenues increased, fueled by strong loan growth and higher net interest income, though earnings dipped due to rising PCL and operating expenses. Nevertheless, in FY24, BNS leveraged its diversified business model to sustain revenue growth while strategically managing costs and investments.
The bank continued this momentum into Q1 FY25, reporting adjusted earnings of $1.30 per share, up 4% year-over-year, surpassing analysts’ estimates of $1.22. Revenues also increased 11.1% to $6.93 billion, exceeding expectations of $6.56 billion, as BNS benefited from lower funding costs following a 200-basis-point rate cut by Canada’s central bank. However, the bank absorbed a $1.01 billion after-tax impairment loss from the transfer of its Colombia, Panama, and Costa Rica operations to Davivienda, leading to a 55% drop in net income to $730 million.
Despite this, net interest income rose 8.4% year-over-year to $3.83 billion, reflecting the bank’s ability to capitalize on higher lending rates and disciplined balance sheet management. However, BNS increased its PCL to $860 million, exceeding analyst forecasts of $810 million, as economic and geopolitical uncertainties persisted—particularly around U.S. trade policies affecting its operations in Mexico.
Looking ahead, BNS expects its PCL ratio to decline in the second half of FY25, assuming no major economic disruptions or new tariffs. The bank has conducted scenario analyses to prepare for potential trade risks, with a base case assuming 5% tariffs on half of Canadian imports and 10% on half of Mexican imports. Excluding tariff impacts, BNS remains on track to achieve the upper end of its FY25 earnings growth target of 5% to 7%.
Additionally, Scotiabank recently revised its segment reporting methodology, reallocating nearly all liquidity costs from the corporate division to specific business units. The bank also restated results from the past two years, adjusting unit-level figures while leaving top-level results unchanged.
BNS maintains a strong financial position, with a Basel III leverage ratio of 4.4%, up 10 basis points and well above the 3% regulatory minimum. This ratio serves as a key measure of financial stability, ensuring that banks maintain adequate capital relative to their total exposures.
While its debt-to-equity ratio of 3.65 exceeds the industry median, Scotiabank remains financially strong. In the banking sector, elevated debt levels are common and are carefully managed through regulatory frameworks like Basel III, which mandate sufficient capital buffers to absorb potential losses.
Further reinforcing its stability, BNS holds “Aa2” and “A+” credit ratings from Moody’s and Standard & Poor’s, respectively, underscoring its strong financial position and prudent risk management practices.
Dividend Growth and Financial Strength
BNS has long been recognized for its commitment to returning capital to shareholders through consistent dividend payments. Since declaring its first dividend on July 1, 1833, BNS has maintained an unbroken streak of payouts, making it one of the longest-standing dividend payers in the banking industry with over 190 years of reliability.
Even during economic downturns, BNS has maintained its dividend payments, demonstrating resilience in its capital management approach. Thus, the only impact of the Covid-19 pandemic on Scotiabank’s dividend policy was that the bank did not increase its dividend in 2020 or the first three quarters of 2021. In Q4 2021, once economic conditions stabilized, Scotiabank raised its dividend by 11%.
Over the past five years, BNS’s dividends have grown by nearly 4%, reaching its current dividend yield of 5.9%. Its current dividend payout ratio stands at 65.5%. Looking ahead, BNS expects to raise its dividend in FY25, backed by projected earnings growth in the range of 5% to 7%. Analysts also anticipate a 1.18% increase in dividends for the current business year.
The bank’s dividends are well supported by its strong Common Equity Tier 1 (CET1) ratio of 12.9%, exceeding the Canadian regulatory minimum of 11.5%. The CET1 ratio is a measure of the bank’s financial strength and solvency. While this ratio declined by basis points in Q1 from the previous quarter due to its investment in KeyCorp and its sale of banking operations in Colombia, Costa Rica, and Panama, BNS still outperformed peers like Royal Bank of Canada and Toronto-Dominion Bank, which typically report CET1 ratios between 11.5% and 12.5%.
Despite not having an active stock buyback program, BNS plans to repurchase shares in the latter half of 2025 and during 2026.
Although BNS NYSE-traded shares have risen by nearly 14% over the past year, at a P/E multiple of 10.6x, they continue to trade at a discount relative to the sector median. This modest valuation remains near the lower end of peer comparisons, suggesting further upside potential. Furthermore, discounted cash flow models suggest that BNS is undervalued by nearly 54%, suggesting an attractive value proposition. The bank’s modest valuation coupled with an attractive dividend yield suggests further upside potential. Additionally, Wall Street analysts remain optimistic about the stock, forecasting an upside of about 21.5% from current levels.
Investing Takeaway
Scotiabank’s strategic realignment, focusing on core North American markets and capital-light businesses, positions it for long-term growth. While near-term challenges like higher provisions for credit losses and economic uncertainty persist, the bank’s strong capital position, resilient earnings, and commitment to shareholder returns offer stability. With a 5.9% dividend yield, an attractive valuation, and growth initiatives in wealth management and digital banking, the stock presents a compelling opportunity for income-focused and long-term investors. As the bank streamlines operations and enhances profitability, its geographic diversification and disciplined risk management provide a solid foundation for sustained value creation.
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Dividend Investor Portfolio
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Portfolio News
▣ Allianz SE (ALIZY) announced its Q4 and FY24 results with Q4 operating profit increasing by 10.9% to reach $4.37 billion lifted by its property and casualty business. This exceeded analysts’ estimates of $4.04 billion. For the full year, the insurance business’s operating profit increased by 8.7% year-over-year to $16.64 billion, exceeding its own guidance. Additionally, the company has proposed a dividend of $16.01, an increase of 11.6% from 2023. Looking ahead, in FY25, the company expects its operating profit to be between $15.6 billion and $17.7 billion. The company also announced a stock buyback program of up to $2.08 billion, which will start this month and will be finalized by the end of the year.
▣ EOG Resources (EOG) reported mixed Q4 results with adjusted earnings declining by 11% year-over-year to $2.74 per share while revenues dropped by 13.8% year-over-year to $5.58 billion. For reference, analysts were expecting an EPS of $2.6 on revenues of $6.04 billion. In FY24, the company’s adjusted EPS dipped by 0.6% year-over-year to $11.62 while revenues fell by 2% year-over-year to $24.18 billion. In the fourth quarter, EOG generated $1.3 billion of free cash flow, compared to $1.5 billion in the same period last year. Additionally, EOG declared a quarterly dividend of $0.975 per share and repurchased $981 million shares in the fourth quarter. Furthermore, the company announced a capital plan to allocate $6.2 billion to achieve a 3% increase in oil production and a 6% rise in total production.
▣ BlackRock’s (BLK) iShares Bitcoin Trust (IBIT) has seen a record one-day outflow of $418.1 million as the selloff in cryptocurrencies gathers steam. U.S. spot exchange-traded funds (ETFs) that track the price movements of BTC saw total daily outflows of $754.6 million on February 26, with outflows from BlackRock’s Bitcoin Trust leading the selloff. According to market data, a total of $3.60 billion has now flowed out of about a dozen spot Bitcoin ETFs since February 7 of this year.
▣ IBM’s (IBM) acquisition of HashiCorp was cleared by the UK’s Competition and Markets Authority (CMA) resulting in the closing of the acquisition. IBM announced the acquisition last year for an enterprise value of $6.4 billion. This acquisition is expected to enable the company to create a comprehensive, end-to-end hybrid cloud platform. Additionally, IBM announced the acquisition of DataStax, an AI and data solution provider for an undisclosed amount.
▣ Kroger (KR) is expected to announce its Q4 results on March 6. Analysts have projected the retailer to report earnings of $1.11 per share, an estimated increase of 13.3% over the prior quarter while revenues are likely to rise by 3.5% over the previous quarter to $34.76 billion. The retailer has forecast adjusted earnings of $4.40 per share at midpoint in FY24 while comparable sales (excluding fuel) are likely to be in the range of 1.2% to 1.5%.
▣ Philip Morris (PM) could be exploring the sale of its cigar business in the U.S., according to a Bloomberg report. The report stated that the company is seeking $1 billion for the cigar business and this potential sale is part of the company’s strategy to reduce its reliance on traditional tobacco-based products. Currently, 40% of PM’s sales come from smoke-free products and the company intends to increase this share to 66% by 2030.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 4.09% | +7.88% | $6,133.50 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Mar 14, 2025 | Apr 01, 2025 | 2.46% | $6.16 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.79% | $1.60 |
| Amgen (AMGN) | May 16, 2025 | Jun 09, 2025 | 3.27% | $9.52 |
| BlackRock (BLK) | Mar 07, 2025 | Mar 22, 2025 | 2.56% | $20.84 |
| Bank of Nova Scotia (BNS) | Apr 01, 2025 | Apr 28, 2025 | 5.9% | $4.24 |
| EOG Resources (EOG) | Apr 17, 2025 | Apr 30, 2025 | 3.06% | $3.92 |
| IBM (IBM) | May 09, 2025 | Jun 10, 2025 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Apr 04, 2025 | Apr 30, 2025 | 2.86% | $5.00 |
| Kroger (KR) | May 15, 2025 | Jun 02, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Mar 10, 2025 | Mar 17, 2025 | 5.62% | $5.36 |
| PepsiCo (PEP) | Mar 07, 2025 | Apr 07, 2025 | 3.64% | $5.44 |
| Philip Morris (PM) | Mar 21, 2025 | Apr 09, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Mar 06, 2025 | Mar 27, 2025 | 2.25% | $3.40 |
| VICI Properties (VICI) | Mar 21, 2025 | Apr 04, 2025 | 5.19% | $1.72 |
| ExxonMobil (XOM) | May 14, 2025 | Jun 10, 2025 | 3.64% | $3.96 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
