The Bank of Nova Scotia's (TSE:BNS) investors are due to receive a payment of CA$1.06 per share on 28th of April. This payment means that the dividend yield will be 5.9%, which is around the industry average.

View our latest analysis for Bank of Nova Scotia

Bank of Nova Scotia's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Bank of Nova Scotia has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Bank of Nova Scotia's last earnings report, the payout ratio is at a decent 84%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next 3 years are set to see EPS grow by 49.2%. For the same time horizon, analysts estimate that the future payout ratio could be 55% which would be quite comfortable going to take the dividend forward.

Bank of Nova Scotia Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of CA$2.56 in 2015 to the most recent total annual payment of CA$4.24. This means that it has been growing its distributions at 5.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Bank of Nova Scotia's earnings per share has shrunk at approximately 6.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bank of Nova Scotia's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.