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One Top Dividend Stock to Buy for Your TFSA in 2020

Haris Anwar
Various Canadian dollars in gray pants pocket
Various Canadian dollars in gray pants pocket

If you’re a long-term investor seeking to create a portfolio of solid dividend-paying stocks, buying Canadian banking stocks is a great idea.

History has shown that Canadian lenders are better positioned to reward long-term investors, like those who use their Tax-Free Savings Account (TFSA) to buy stocks. What makes them a standout in the large universe of financial stocks is their ability to perform better in both good and bad economic times.

Nation’s top five lenders, for example, have rock solid balance sheets, growing payouts, and diversified revenue streams.

One popular trading strategy that many investors have used to pick these great income stocks is to buy the one that is underperforming. That underdog catches up with the peers quickly, and the investors who bet on its revival benefit from the upside.

If you want to use this proven strategy, then Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) offers a good entry point to strengthen your TFSA portfolio.

The third-largest lender by the market size has had a weakest recovery among the top five lenders this year, gaining just over 7% so far — a rebound comes after more than 15% plunge in its stock price last year.

Acquisitions are paying off

That pullback was largely driven by investors’ concerns that the lender’s aggressive acquisition drive will erode profitability and create an integration mess. However, the lender’s latest earnings show that it has started to benefit from its massive acquisition drive.

The fiscal year that ended October 31 was the first to include three significant acquisitions that Scotiabank made in 2018, including two Canadian wealth managers, MD Financial Management and Jarislowsky Fraser Ltd.

For the fourth quarter, Scotiabank reported profit of $2.3-billion, or $1.73 per share, compared with $2.27-billion, or $1.71 per share a year earlier.

The good news in this report was that profit from Scotiabank’s international banking division was up 3% from a year earlier, driven by increases in loans across the bank’s Latin American division. The Canadian wealth management business, on the other hand, also benefited from new businesses, with profits rising by 15%.

BNS has undertaken major changes over the past year, spending more than $7 billion on acquisitions to bolster its businesses in Chile and in wealth management, while selling a number of international operations in the Caribbean and El Salvador. In my view, the timing is right to buy BNS stock now, as the lender has clearly embarked on a solid expansion.

Bottom line

Trading at $73.66 at the time of writing, BNS stock yields 4.8% and pays a $0.9-a-share quarterly dividend. This is one of the best times to add this solid dividend stock to your TFSA, as the lender recovers from the weakness and offers good potential of capital gains.

More reading

Fool contributor Haris Anwar has no position in the stocks mentioned in this article. The Motley Fool recommends BANK OF NOVA SCOTIA. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

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