The “International Bank” is finally starting to look a little less international and a lot more North American. With the stock up 28.7% this year, management’s bold strategy to exit risky Central American markets and double down on stable United States is getting applause from Bay Street.
But looking ahead to 2026, the investment outlook should answer a key question. We know the restructuring is working, but are Canadian bank stocks still a buy after such a huge run? Here’s the outlook for BNS stock as we head into the new year.
The great “de-risking” continues
For years, Scotiabank shares traded at a discount to peers due to its exposure to volatile emerging markets in Colombia, Peru and Chile. 2025 changed that story significantly.
On December 1, Scotiabank completed the sale of its assets in Colombia and Central America to Davivienda. At the same time, it strengthened its footprint in the US by completing a 15% investment KeyCorp and the announcement of a new regional office in Dallas.
The impact on earnings quality is undeniable. During the fourth quarter of 2025 (Q4 2025), US earnings contributed 16% of the total pot, a huge structural shift for the bank’s earnings quality.
By exchanging volatile emerging market earnings for stable U.S. dollars, Scotiabank essentially lowers its earnings risk profile. Investors are generally willing to pay more for a dollar of income from a stable source, ignoring income from volatile economies. For long-term investors, this “risk reduction” often leads to a higher stock price over time (a phenomenon called multiple expansion), even if earnings growth is modest.
Dividend outlook for Scotiabank shares
Scotiabank shares are a source of passive income for many Canadian dividend investors. Heading to 2026, BNS shares yield a generous 4.4%. The bank has paid dividends continuously since 1832, and 2026 should be no exception. With a common equity tier-one (CET1) ratio of 13.2%, the bank’s balance sheet is strong, making your quarterly check safe.
However, income investors should pay attention to the payout ratio. The payout is currently just under 75% and is safe, but on the high side compared to industry peers. A high payout ratio means that the bank retains less capital to reinvest in organic growth. It weighs on the bank’s organic growth capacity.
While I fully expect Scotiabank to increase its dividend in 2026, investors should temper their interest rate expectations mate of that walk. Until the bank’s earnings growth fully exceeds its dividend obligations, we will likely see low to mid-single digit dividend increases. That’s perfectly acceptable for income investors who hold these bank shares in a tax-free savings account: you get high starting returns and security, with growth that matches inflation.
The restructuring of BNS: the new normal?
If there is a gray cloud in this silver lining, it is the recurring “one-time” costs.
In the fourth quarter of 2025, the bank took $373 million in restructuring charges, largely for workforce reductions. This follows similar costs in 2023 and 2024. With the number of employees down to 86,431 (levels last seen in 2018), Scotiabank could aggressively use technology to replace its workforce.
BNS Total number of employees (annual) data Ygraphs
While restructuring costs depress immediate returns on equity, they point to a leaner, more digitalized future. If these cuts result in sustainable efficiencies by 2026, the temporary pain will be worth the long-term gain.
Valuation: Scotiabank shares are still a buy
Despite the 28% rally in 2025, BNS stock has not yet entered overbought territory. Scotiabank enters 2026 trading at a price-to-earnings (P/E) ratio of just 11. This remains one of the cheapest valuations among the Big Five Canadian banks and offers a tempting entry point for value investors who believe the U.S. strategy is just getting started.
The silly bottom line
Bank of Nova Scotia enters 2026 as a structurally different bank than it was five years ago. It is leaner, more focused on North America and less exposed to geopolitical volatility. Despite the prospects for slower dividend growth in 2026, BNS appears poised to deliver in 2026 for investors looking for a mix of stable income and an affordable turnaround story.
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