Bank of Nova Scotia (TSX:BNS), or Scotiabank, is a cornerstone of Canada's financial sector with a market cap nearing $96 billion. While BNS stock has faced headwinds in recent years, and shares generated a 5% capital loss over the past three years, the bank's strategic transformation and its commitment to dividends have recaptured investor attention, resulting in a 29% total return so far this year. Could BNS stock sustain its recent momentum over the next three years?

Here's a closer look at the top bank stock's growth drivers, earnings potential, and risks that could shape Scotiabank's future.

Revenue growth and strategic focus

Scotiabank's revenue growth over the next three years hinges on balancing domestic mortgage market dominance with international diversification. In Canada, the bank has shifted focus from market share to value creation. This is evident in its multiproduct mortgage strategy, which pairs mortgages with day-to-day banking accounts and other products. By the third quarter of 2024, Scotiabank had added 143,000 new primary clients and substantially grown its deposit base, underscoring the success of this approach.

Internationally, Scotiabank continues to leverage its presence in Latin America, particularly in Mexico, Chile, and Colombia. These markets are rebounding from monetary tightening cycles, offering growth opportunities.

Meanwhile, BNS stock's recently announced US$2.8 billion (CA$3.9 billion) equity investment in U.S.-based KeyCorp positions the bank to expand its North American footprint, with 75% of revenue expected to come from Canada, the U.S., and Mexico by 2025.

Earnings and investments

Scotiabank's adjusted earnings of $2.2 billion during the third quarter demonstrate the impact of its disciplined capital deployment and cost controls. The bank's cost-to-income ratio improved by 130 basis points in Canadian banking and 210 basis points in international banking. Aided by cheaper deposits, net interest margins may remain stronger, and earnings may grow over the next three years.

Bay Street financial analysts project a 9% earnings growth rate for BNS stock over the next year from a 6.1% increase in revenue.

The latest KeyCorp investment, though priced at an 11% premium, could boost earnings per share (EPS) by $0.25 in 2026. The investment strengthens Scotiabank's position in the U.S. market, enhances its deposit-led business model, and aligns with the bank's focus on high-value client relationships.

Additionally, Scotiabank is investing heavily in digital transformation. Mobile-first banking and automation may drive operational efficiencies and improve customer experiences, paving the way for sustainable revenue and earnings growth.

Dividends: A pillar of stability for BNS stock

One of the most attractive aspects of BNS stock is its dividend. Scotiabank's quarterly dividend of $1.06 per share translates to an annual yield of 5.4%, a juicy payout for passive-income purposes. Over the past three years, Scotiabank has delivered an average annual dividend growth of 5.6%, and the bank could announce more dividend raises in the future.

BNS stock's dividend payout ratio of 73%, though it's higher than Canadian peer averages, still reflects a strong commitment to returning capital to shareholders while maintaining robust reserves. As Scotiabank strengthens its balance sheet and executes its growth strategy, its dividends will remain a reliable source of income for investors.

Risks to consider for BNS stock

While Scotiabank's outlook is optimistic, potential risks remain. Rising credit provisions in Canada and economic instability in Latin America could weigh on earnings. Moreover, its U.S. expansion via KeyCorp depends on effective strategic integrations and favourable market conditions.

The Canadian mortgage market, BNS's key revenue driver, is navigating elevated interest rates, and 2025, 2026, and 2027 will see a wave of mortgage renewals. However, Scotiabank's multiproduct strategy and recent sequential growth in mortgage balances indicate resilience. As interest rates are expected to decline gradually in 2025, this segment could contribute to stronger earnings.

Where will BNS stock be in three years?

By 2027, BNS stock will have benefited from a diversified revenue base, enhanced operational efficiency, and the bank's strategic focus on value over volume. Its disciplined capital allocation and consistent dividend growth make it an attractive choice for long-term investors.

Investors seeking both income stability and growth potential may find BNS stock compelling. While challenges exist, the bank's clear strategy and strong leadership provide a solid foundation for success.