Forget New York Community Bancorp, buy this magnificent high-yielding stock instead

There are hard turns and then there are easy turns. Most investors should be wary of hard returns, but easy ones can be worth a deep dive even for more conservative investors. This is why investors should forget New York Community Bancorp (NYCB 1.83%) and instead buy Bank of Nova Scotia (NBS 0.60%) and its high dividend yield of 6.2%.

Here’s a quick comparison to explain why.

New York Community Bancorp falls flat on its face

New York Community Bancorp’s ambition was to become a bigger bank. To that end, it bought Flagstar Bank in December 2022. Then there were a series of bank runs and failures in early 2023. New York Community Bancorp got through that tough time without much trouble and actually tried to take advantage of market dislocation.

In mid-2023, New York Community Bancorp (through its subsidiary Flagstar) bought parts of Signature Bank, one of the failed banks. The bank’s goal of getting bigger happened pretty quickly, which is where things started to go wrong. Because of its larger size, New York Community Bancorp suddenly found itself facing the prospect of increased regulatory scrutiny for which it was unprepared. Then, in an unfortunate moment, the bank announced that some large loans were in trouble, suggesting that it had not managed its loan portfolio well.

The stock crashed, the board cut the dividend to a token penny per share per quarter, the board brought in new management and New York Community Bancorp had to accept a $1 billion bailout. It is now working to improve its internal controls and clean up its loan portfolio. The new management team appears to be making the right moves, but the turnaround effort is not expected to be done until at least late 2026.

NYCB data by YCharts

There’s certainly upside potential in this stock, as the $1 billion cash infusion puts the company in pretty good financial shape, but there’s barely a dividend left to speak of, and there’s still a few years to go in the effort to recovery.

If you’re looking for something that can be more rewarding now, you might want to consider Bank of Nova Scotia, more commonly known as Scotiabank.

Bank of Nova Scotia is shifting gears

The Bank of Nova Scotia story is spread over a longer period and is not nearly as troubling. While many of the Canadian bank’s peers chose to expand into the US market, Scotiabank chose to expand into Central and South America. The logic was that in those regions there was both less competition and more opportunities for long-term growth. The problem is that the markets have been even more volatile. Scotiabank has lagged its peers on key financial metrics such as earnings growth and return on equity.

The company decided to shift gears. It is now looking to exit less desirable markets (like Colombia) and expand into more attractive ones (like Mexico) while trying to build a giant North American bank. A key part of the plan is to grow their businesses in the United States, like their peers. To that end, management has just agreed to buy nearly 15% of the KeyCorp (KEY 0.25%).

It’s not something a financially weak bank could have pulled off because it really amounts to a helping hand for KeyCorp. And that’s the big difference: while Scotiabank is clearly trying to start growing its business in line with its peers, it’s not really operating from a position of weakness. It is still one of the largest and best-run banks in Canada (where it generates about two-thirds of its net income). They just need to work in business outside of Canada.

So the high dividend yield of 6.2% is a function of negative investor sentiment, but it probably overstates the risk. Notably, Scotiabank has paid a dividend every year since 1833. And there’s no indication that a dividend cut is imminent, although management has halted increases for now as they adjust their businesses. If you like high-yield stocks, this is a change that would be worth a deep dive, even if you’re a conservative investor.

Scotiabank: The clear winner for most investors

To be fair, New York Community Bancorp is very likely to change its business. But right now, the only attraction here is share price appreciation, and the recovery won’t be complete until late 2026 at the earliest. That’s assuming everything goes according to plan. Bank of Nova Scotia’s “turnaround” will likely take longer, but the bank is starting from a much stronger position. It also pays you well to stay, given the huge returns. If you like a good night’s sleep, Scotiabank is the winner here.