Bank of Nova Scotia (TSX: BNS) has experienced a notable 15% increase in its stock price since late October last year, prompting investors to reassess its potential as an investment for tax-free savings accounts (TFSA) or registered retirement savings plans (RRSP). Despite the recent rally, questions linger about whether BNS stock remains undervalued and presents an attractive opportunity for dividends and total returns. 

Bank of Nova Scotia's Recent Stock Performance 

Currently trading near $64, Bank of Nova Scotia's stock, a TSX banking share, has rebounded from its 12-month low of around $55 per share. However, it remains significantly below its peak of $93 reached approximately two years ago following the 2020 market crash. 

Impact of Rising Interest Rates 

The decline in BNS stock can be largely attributed to the effects of rising interest rates. Over the past two years, both the Bank of Canada and the U.S. Federal Reserve have raised rates in efforts to curb inflation. As borrowing costs increase for households and businesses, economic activity tends to decline, affecting spending on discretionary goods and services and potentially hindering investment in growth initiatives. This scenario has led to concerns among investors about potential economic repercussions, including unemployment and bankruptcies, prompting a downturn in bank stocks. 

Outlook for Bank of Nova Scotia 

Despite these challenges, Bank of Nova Scotia and its peers have raised provisions for credit losses (PCL) in anticipation of continued economic uncertainty. However, the overall loan book remains robust, and economists foresee a mild recession with declining inflation rather than a severe economic downturn. Bank of Nova Scotia is well-positioned to navigate market turbulence, thanks to its solid capital cushion. 

Earnings and Growth Strategies 

Bank of Nova Scotia maintains profitability, reporting adjusted net income of $8.4 billion in fiscal 2023, with expectations for marginal improvement in 2024. Cost-cutting measures, including staff reductions, are expected to further enhance profitability. The bank's new CEO is focused on driving shareholder returns through growth investments in key markets such as Canada, the United States, and Mexico. Additionally, divestment of operations in certain markets like Chile, Peru, and Colombia may occur if turnaround efforts are unsuccessful. 

Dividend Outlook 

Bank of Nova Scotia recently increased its dividend, signaling confidence in its profit outlook. With a current dividend yield of 6.6%, the bank offers an attractive income opportunity for investors. 

Conclusion 

In conclusion, Bank of Nova Scotia presents an enticing opportunity for investors seeking stable dividends and long-term growth potential. While ongoing volatility is anticipated, BNS stock appears undervalued for a buy-and-hold portfolio. Existing investors may consider holding their positions, while new investors could start accumulating shares, particularly during market pullbacks, to capitalize on the next phase of recovery.