If there's one thing on Wall Street that I know I can count on, it's that bull markets are going to be followed by bear market crashes. It's just the natural cycle of things, which is why I start to get a little nervous when the S&P 500 is trading near all-time highs, like it is today.
Since I don't know what's going to happen in the future, I try to find ways to offset the risk of market downturns and even use them to my advantage. That's why I love reliable dividend stocks like Bank of Nova Scotia(NYSE: BNS).
Bank of Nova Scotia has a long history of paying dividends
Is the stock market going to crash? Although I don't know when, I do know that it eventually will. And when that downturn does come, I want a company that I can count on to survive it. Bank of Nova Scotia, more commonly known as Scotiabank, traces its history back to 1832. That's a very long time for a company to exist and suggests that it is likely to remain a going concern in the future no matter what happens to the stock market.
Image source: Getty Images.
Then there's the dividend, which has been paid since 1833. While the dividend hasn't gone steadily higher since that time, management has clearly placed a high importance on it. But there's more here than meets the eye when you think about just recent history. When the Great Recession hit, many of the largest U.S. banks, including both Bank of America and Citigroup, were forced to cut their dividends. Scotiabank didn't.
BNS Dividend Per Share (Quarterly) data by YCharts
Scotiabank is a fundamentally different bank
The big takeaway from this comparison is that Citigroup and Bank of America are large U.S. banks and Scotiabank is a large Canadian bank. Banking regulations in the United States are less restrictive than those in Canada, which has led to a more conservative ethos among large Canadian banks like Scotiabank. That regulation has also resulted in a small number of large Canadian banks having entrenched industry positions. Scotiabank is among them, which means it has a strong foundation for its business.
That's well and good, but there are a number of other large Canadian banks that share the same traits. Nevertheless, Scotiabank still stands out as being vastly different. That's because, unlike most of its Canadian peers, it has chosen to focus its expansion efforts on South America. Canada makes up 62% of the business, the U.S. just 8%, with the rest largely derived from South America.
In fact, when the U.S. faced a series of bank runs in early 2023, Scotiabank's shares didn't skip a beat. It just didn't have a big enough presence in the country for it to be a significant risk.
The South American exposure hasn't been all good. In fact, the company's performance has lagged peers largely because results in some of the countries in which it operates haven't lived up to expectations. Management is currently working on a plan to focus on its best markets and exit its weakest. But that's actually an opportunity today, because investors are avoiding the stock despite the bank's many strengths. The yield is a very attractive 6.6%.
Scotiabank doesn't care about the U.S. stock market
For me, Scotiabank is a high-yield diversification play. Since the U.S. makes up so little of its business, a deep downturn on Wall Street isn't going to be that big a deal to its long-term financial success. And I'm not that worried about the bank's dividend-paying ability given its strong history and Canadian roots.
So even if the stock goes down in a bear market, which is likely, it just means dividend reinvesting will lead to me buying more shares of a company that I like. While I'm not exactly looking forward to a crash, thanks to Scotiabank, I'm definitely not losing sleep over the fact that one is eventually going to come.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Reuben Gregg Brewer has positions in Bank Of Nova Scotia. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.
