Scotiabank Maintains Dividend at $0.795 on October 7 as Backtests Suggest Mixed Short-Term Outlook

Introduction

The Bank of Nova Scotia (BNS) has announced a quarterly cash dividend of $0.795 per share, to be paid to shareholders on record as of October 7, 2025. This marks another consistent payout in a long history of dividend stability, a hallmark of Canadian banking stocks. While the Canadian banking sector is known for its reliable dividend yields, investors should also consider the broader market conditions—such as rising interest rates and credit risk concerns—that may influence BNS’s stock behavior around the ex-dividend date.

Dividend Overview and Context

Dividend investors closely monitor the ex-dividend date because it typically results in a small price adjustment in the stock value, reflecting the payout. BNS’s $0.795 cash dividend per share represents a strong yield for income-oriented investors. As the stock goes ex-dividend on October 7, market participants expect a corresponding reduction in BNS’s share price equivalent to the dividend value.

With a dividend payout ratio of approximately 54% (based on $5.765 billion net income attributable to common shareholders and $3.51 billion preferred dividend), BNS is maintaining a disciplined balance between rewarding shareholders and preserving financial flexibility. This aligns with industry norms among Canadian banks, which typically maintain payout ratios between 40% and 60%.

Backtest Analysis

A historical backtest of BNS’s performance around ex-dividend dates reveals an average recovery period of 4.83 trading days post-ex-dividend. However, the 15-day recovery probability is only 55%, indicating that while the stock often rebounds relatively quickly, the odds of full normalization within the short term are moderate.

This suggests that while a dividend capture strategy could offer some upside, it also carries a degree of price volatility risk. The backtest also assumes no reinvestment of proceeds during the recovery period, which may affect the real-world performance of such a strategy.

Driver Analysis and Implications

BNS’s ability to sustain its dividend is supported by strong core earnings and a robust net interest income of $14.329 billion. The bank’s net interest margin remains strong, driven by growth in loans and deposits. The provision for credit losses, at $3.021 billion, reflects a cautious stance, indicating the bank is preparing for potential macroeconomic headwinds.

With the broader interest rate environment still uncertain, BNS’s capital and liquidity positions appear well-managed, supporting its ongoing dividend payments. However, rising funding costs may pressure net interest income in the medium term, which could influence the bank’s future payout decisions.

Investment Strategies and Recommendations

Short-term investors may find a dividend capture strategy attractive, given the likelihood of a price drop on October 7 and a moderate chance of a quick rebound. Investors should be prepared for some short-term volatility and should monitor key earnings and macroeconomic events around the same period.

Long-term investors should focus on the bank’s consistent earnings and capital strength, which support a reliable dividend stream. A buy-and-hold strategy remains appropriate for those seeking stable income from a well-capitalized Canadian bank.

Diversification across sectors and reinvestment of dividend proceeds can further enhance long-term returns, particularly in a low-growth macroeconomic environment.

Conclusion & Outlook

The Bank of Nova Scotia’s ex-dividend date on October 7 will likely see a moderate price adjustment, in line with its $0.795 cash dividend. While short-term recovery is not guaranteed, the bank’s strong earnings and sound capital position suggest a solid outlook for its dividend sustainability. Investors are advised to monitor the next earnings report and potential changes in the macroeconomic landscape as key indicators of future performance.

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