Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada (TSX:RY)(NYSE:RY) are perennial top picks and hold anchor positions in many Canadian portfolios.

Let’s take a look at both companies to see if one is a better choice heading into 2016.


TD reported adjusted net income of $8.754 billion or $4.61 per share for fiscal 2015. The results were 8% higher than last year. The company relies heavily on its personal and commercial banking activities with large operations in both Canada and the United States. The strong U.S. dollar pushed adjusted earnings from the U.S. operations up by 21%.

Royal Bank had 2015 adjusted net income of $9.918 billion, or $6.66 per share, up 9% compared with 2014. The company gets 52% of its income from personal and commercial banking activities. Capital markets activities bring in about 24% of profits, with the rest coming from wealth management, insurance, and investor and treasury services.

Energy exposure

A big concern for bank investors is the level of exposure the financial institutions have to the struggling energy patch.

In its fiscal Q4 2015 earnings statement, TD said it had $3.8 billion in drawn exposure to energy companies, which is less than 1% of its total loan book.

Royal Bank said its Q4 2015 drawn exposure in the oil and gas sector was $7.7 billion, or 1.6% of total loans.

Housing exposure

TD has $246 billion in Canadian residential mortgages. Uninsured mortgages represent 44% of the portfolio and those loans have an average loan-to-value ratio of 61%.

Royal Bank finished Q4 with $205 billion in Canadian residential mortgages. Uninsured loans represent 62% of the portfolio and the loan-to-value ratio is 55% on that component.


TD finished Q4 with a CET1 ratio of 9.9%. Royal Bank finished fiscal 2015 with a CET1 ratio of 10.6%.


TD pays a quarterly dividend of $0.51 per share that yields 3.7%. The company increased the dividend by 9% in 2015.

Royal Bank’s dividend is $0.79 per share and yields 4.2%. The dividend was increased twice in 2015 for a total gain of 8% over 2014.

Which bank is a better bet?

Both TD and Royal Bank are great companies with long histories of providing shareholders with fantastic returns, and investors should be comfortable holding either name.

Right now, TD has lower oil and gas exposure and a larger part of its mortgage portfolio is insured, so a total meltdown in Canada would probably hit Royal Bank a bit harder. Royal Bank also gets a significant part of its earnings from capital markets activities, which can be more volatile than the other segments. On the positive side, Royal’s capitalization is better and the stock offers a slightly higher dividend yield.

TD is probably the way to go if you want to make the safer bet. If the highest yield is your main objective, and you are willing to take on a bit more risk, go with Royal Bank.

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Fool contributor Andrew Walker has no position in any stocks mentioned.