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Which of Canada’s Big 2 Banks Is the Better Buy Today?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada (TSX:RY)(NYSE:RY) are the two largest banks in Canada in terms of total assets, and both of their stocks represent very attractive investment opportunities today.

However, in order to stay diversified, we must only choose one for our portfolios, so let’s take a closer look at each company’s earnings results in fiscal 2015, their stocks’ valuations, and their dividends to determine which is the better long-term buy today.

Toronto-Dominion Bank

Toronto-Dominion is Canada’s largest bank, and its stock has fallen just over 4% year-to-date, including a decline of over 3% since it released its earnings results on the morning of December 3 for its fiscal year ended on October 31, 2015. Here’s a summary of 10 of the most important statistics from fiscal 2015 compared with fiscal 2014:

  1. Adjusted net income increased 7.7% to $8.75 billion
  2. Adjusted earnings per share increased 8% to $4.61
  3. Total revenue increased 4.9% to $31.43 billion
  4. Net interest income increased 6.5% to $18.72 billion
  5. Non-interest income increased 2.6% to $12.7 billion
  6. Total assets increased 15% to $1.1 trillion
  7. Total deposits increased 15.8% to $695.58 billion
  8. Total loans, net of allowance for loan losses, increased 13.7% to $544.34 billion
  9. Total assets under management increased 17.7% to $345.8 billion
  10. Book value per share increased 18.8% to $33.81

At today’s levels, Toronto-Dominion’s stock trades at 11.6 times fiscal 2015’s adjusted earnings per share of $4.61, 11 times fiscal 2016’s estimated earnings per share of $4.83, and 10.3 times fiscal 2017’s estimated earnings per share of $5.16, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 13.1 and the industry average multiple of 12.7. It also trades at 1.57 times its book value per share of $33.81, which is inexpensive compared with its five-year average market-to-book value of 1.79.

In addition, Toronto-Dominion pays a quarterly dividend of $0.51 per share, or $2.04 per share annually, giving its stock a 3.8% yield. Investors must also note that the company has raised its annual dividend payment for five consecutive years, and it is currently on pace for 2016 to mark the sixth consecutive year with an increase.

Royal Bank of Canada

RBC is Canada’s second-largest bank, and its stock has fallen over 9% year-to-date, including a decline of over 5% since it announced its earnings results on the morning of December 2 for its fiscal year ended on October 31, 2015. Here’s a summary of 10 of the most important statistics from fiscal 2015 compared with fiscal 2014:

  1. Adjusted net income increased 8.6% to $9.92 billion
  2. Adjusted earnings per diluted share increased 9.4% to $6.66
  3. Total revenue increased 3.6% to $35.32 billion
  4. Net interest income increased 4.6% to $14.77 billion
  5. Non-interest income increased 2.8% to $20.55 billion
  6. Total assets increased 14.2% to $1.07 trillion
  7. Total deposits increased 13.5% to $697.23 billion
  8. Total loans, net of allowance for loan losses, increased 8.5% to $472.22 billion
  9. Total assets under management increased 9.1% to $498.4 billion
  10. Book value per share increased 17.3% to $39.51

At today’s levels, RBC’s stock trades at 10.9 times fiscal 2015’s adjusted earnings per share of $6.66, 10.5 times fiscal 2016’s estimated earnings per share of $6.88, and 9.9 times fiscal 2017’s estimated earnings per share of $7.31, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 12.7 and the industry average multiple of 12.7. It also trades at 1.90 times its book value per share per share of $38.20, which is inexpensive compared with its five-year average market-to-book value of 2.21.

In addition, RBC pays a quarterly dividend of $0.79 per share, or $3.16 per share annually, which gives its stock a 4.4% yield. It is also important to note that the company has raised its annual dividend payment for five consecutive years, and it is currently on pace for 2016 to mark the sixth consecutive year with an increase.

Which is the better buy today?

Here’s how each company ranks when comparing their earnings results in fiscal 2015, their stocks’ valuations, and their dividends:

Metric Toronto-Dominion RBC
Earnings Strength 1 2
Current P/E Valuations 2 1
Forward P/E Valuations 2 1
Market-to-Book Value 1 2
Dividend Yield 2 1
Dividend Growth 1 1
Average Ranking 1.50 1.33

As the chart above depicts, both companies have raised their annual dividend payments for five consecutive years, and Toronto-Dominion reported stronger earnings results in fiscal 2015 and its stock trades at a more attractive market-to-book value, but RBC’s stock trades at more attractive current and forward price-to-earnings valuations, and it has a higher dividend yield, giving it a very narrow win in this match up.

With all of this being said, both banks represent great long-term investment opportunities today, so all Foolish investors should strongly consider initiating positions in one of them in the very near future.

Before you buy any bank stock, you must read this...

Canadian banks are considered must-have investments. After all, they're very stable, well capitalized, and face limited competition. That said, there are concerns for the banks and their investors. In this FREE report, we cover everything you need to know about Canada's Big Five--whether you're already an investor or are considering buying shares. Simply click here to receive your special FREE report, "What Every Bank Shareholder MUST Know."

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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