If you’re looking for income from blue-chip Canadian companies, look no further than the banking industry.
Canada’s top banks have a history of providing consistent returns to investors. Royal Bank of Canada (TSX: RY)(NYSE: RY) and Toronto-Dominion Bank (TSX: TD)(NYSE: TD) are premier stocks for your portfolio.
Royal Bank of Canada
Canada’s largest bank by market capitalization, Royal Bank has five strong business segments. These include Personal and Commercial Banking, Wealth Management, Investor and Treasury Services, Capital Markets, and Insurance. Royal Bank is the 12th largest bank worldwide (based on market capitalization) and serves over 16 million customers globally.
Its broad base of operations in 44 countries offers geographic diversification for investors. Global Finance recently named Royal Bank the Best Trade Finance Bank in Canada in 2014 for the second consecutive year.
Close to two-thirds of RBC’s revenue is from Canada and 54% of its earnings come from its Personal and Commercial Banking segment. This segment has No. 1 or No. 2 market share in all product categories while 23% of its earnings come from Capital Markets (primarily Corporate and Investment Banking and Global Markets).
Royal Bank is a consistent dividend payer. Its current dividend yield is 3.50% and its dividend rate is $2.84. Royal Bank announced a 6% dividend increase ($0.04 per share) this past February. The compound annual growth rate of dividends was over 10% from 2005 to 2013. Royal Bank’s five-year average dividend payout ratio is 51%.
RBC’s 10-year total shareholder return is 14% in comparison to the peer average of 6%. The bank’s Q2 2014 dividend payout ratio was 48%. Royal Bank has increased its dividend six times since 2011.
Toronto-Dominion Bank
Toronto-Dominion Bank serves more than 22 million customers and is the sixth largest bank in North America by branches. Its earnings mix is built on a North American retail focus. The bank’s three key business segments are Canadian Retail, U.S. Retail, and Wholesale Banking. This year, TD became the primary credit card issuer for the Aeroplan loyalty rewards program. Additionally, TD ranks among the world’s foremost online financial services firms. It has roughly 8 million active online and mobile customers.
The bank’s strength is its Canadian Retail operations. For Q2 2014, Canadian Retail produced net income of $1.3 billion. This represents growth of 12% on an adjusted basis versus Q2 2013. Its retail brands in Canada include TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance. J.D. Power and Associates ranked TD Canada Trust as the highest in customer satisfaction among the big five retail banks for the eighth year in a row.
TD Bank is also a consistent dividend payer. Its current dividend yield is 3.30% and its dividend rate is $1.88. For total shareholder returns, the five-year compound annual growth rate is 15.2% and its five-year average dividend payout ratio is 47%.
Consider Canada’s leading banks to grow the cash reserve in your portfolio. For income investing, Royal Bank of Canada and Toronto-Dominion Bank give you steady returns from fundamentally sound operations.
