This High-Dividend Canadian Bank Stock Loves the Federal Reserve

The markets have been running in place this week, swinging between sharp highs and lows during intraday trading to end up very close to where they started.

The main culprits for this uncertainty claim as their office address The Marriner S. Eccles Federal Reserve Board Building in Washington.

But sorting through this noise and confusion, turns up a bank stock that gets little attention and yet offers a fat dividend yield of 4.72%, as well as big potential gains this year: Bank of Nova Scotia (BNS) - Get Report , also called Scotiabank.

Steady growth and income is hard to find these days, as the broader markets get whipsawed by monetary policy rumors, gyrating energy prices and a U.S. presidential campaign that has devolved into a gaudy circus.

On Wednesday, the Fed released the minutes of its last meeting, indicating that it was open to raising rates with a greater willingness than many had assumed. This news gave investors the jitters, prompting them to sell utilities and other high-dividend payers that had been rising much of the year.

However, many banks enjoyed a rally on Wednesday because higher rates help them make more money. Among the biggest gains in the financial services sector were Goldman Sachs, up 3% and JPMorgan Chase, up 4%. 

But Toronto-based Skotiabank is a growth stock winner in the banking sector that will thrive amid higher rates. What's more, it boasts strong fundamentals and is poised to report solid quarterly earnings. 

Exacerbating the market's uncertainty has been a terrible earnings season. Operating reports so far this quarter have been dismal, dragging down the broader markets with them.

With 91% of companies in the S&P 500 reporting earnings to date for this quarter, the blended earnings decline has been 7.1%.

Just how bad is that performance? This quarter marked the first time that the index has recorded four consecutive quarters of year-over-year declines in earnings since the nadir of the Great Recession, which was the fourth quarter of 2008 through the third quarter of 2009.

But Canadian bank stock (yes, Canadian) Scotiabank is bucking these trends.

The bank is scheduled to report fiscal second-quarter earnings results on May 31, and the consensus estimate is for earnings of $1.43 a share, in line with earnings a year earlier. For the current fiscal third quarter, earnings are expected at $1.50 a share, compared with $1.47 a year earlier.

Earnings are expected at $5.86 for full-year fiscal 2016 and $6.18 for fiscal 2017, compared with $5.72 in fiscal 2015. 

The time to buy this stock is now, while it is still a bargain and ahead of its operating results.

The fact is, Canadian fixed-rate mortgages are linked to U.S. bond prices via long-term Canadian bonds. Consequently, as U.S. rates rise, bond prices fall and Canadian mortgage rates rise.

Overall, Canadian rates have tended to increase in tandem with U.S. rates, which is good news for Scotiabank.

Another plus for Scotiabank is that its peers are getting weighed down by borrowers in the oil-rich province of Alberta, as oil producers contend with shrinking revenue. Scotiabank's shrewd decision during the oil boom to instead emphasize Latin America and its rising ranks of affluent middle-class consumers has been bearing fruit.

Last year, the company enjoyed record earnings for its international business and robust loan growth overall. Scotiabank is now a momentum stocks set to outperform the market in 2016.

With a market capitalization of $75.08 billion, Scotiabank is globally diversified, offering a wide variety of products and services, including retail, commercial, corporate and investment banking to more than 21 million customers in more than 55 countries.

Scotiabank's international footprint provides it with exposure to some of the better-performing and more resilient developing nations in Latin America, without the dangerous exposure to floundering countries such as Brazil, which is hurting other big banks.

The Canadian bank recently inked a deal valued at $360 million to buy Citigroup's consumer and commercial-banking operations in Costa Rica and Panama, tripling Scotiabank's customer base in those relatively stable emerging markets.

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Scotiabank's trailing 12-month price-to-earnings ratio is 10.68, compared with an average 10.74 for its peers. With shares trading at about $47, the median analyst one-year price target is $53.38, and it is $55.70 on the high end, which would represent a gain of nearly 16%.

The company's debt-to-equity ratio is 0.14, low compared with the average for the financial services industry of 1.27.

With a high dividend yield that is sustainable, long-term earnings growth in place and double-digit stock price appreciation in the cards, Scotiabank is a reliable growth-and-income play in a market that gets easily spooked by anything that resembles bad news.

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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.