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Should You Buy Bank of Montreal or Royal Bank of Canada Today?

Canadian investors often turn to the banks when searching for new stocks to add to their portfolios.

Let’s take a look at Bank of Montreal (TSX:BMO)(NYSE:BMO) and Royal Bank of Canada (TSX:RY)(NYSE:RY) to see if one is a better bet right now.

Bank of Montreal

Canada’s oldest bank continues to generate solid results in a tough economic climate.

What’s the story?

The bank has a diversified revenue stream with assets spread out across different segments of the industry. It also has a strong presence in the United States.

Bank of Montreal reported fiscal Q2 2016 adjusted net income of $1.152 billion–up 1% compared with Q2 2016. For the first six months of the year, adjusted net income was up 7%.

The Canadian personal and commercial banking operation generated 43% of fiscal Q2 2016 net income. The U.S. group contributed 20% of the profits. The capital markets segment kicked in 21% of income, and the wealth management division added the remaining 16%.

Bank of Montreal’s U.S. business was the standout, earning $279 million in the quarter–up 27% from Q2 2015.

The company recently purchased GE Capital’s transport finance business, and those assets should drive the U.S. contribution even higher in the coming years.

Bank of Montreal pays a quarterly dividend of $0.86 per share for a yield of 4.1%.

The stock currently trades at 12.6 times trailing earnings, which is higher than the five-year P/E average of 11.3 times.

Royal Bank

Royal Bank also has a diversified revenue stream that is supporting strong results.

Fiscal Q2 2016 net income was $2.573 billion–up 5% compared with the same period last year. For the first half of 2016, Royal Bank has already earned more than $5 billion.

Personal and commercial banking contributes 52% of the company’s profits. Capital markets add 23%, wealth management kicks in 13%, insurance generates 7%, and the remaining 5% comes from investor and treasury services.

Royal Bank is returning to the U.S. market in a big way with its recent US$5 billion purchase of California-based City National, a private and commercial bank.

The addition of City National gives Royal Bank a strong platform to expand its reach in the sector, and investors could see more acquisitions in the space in the coming years.

Royal Bank pays a quarterly dividend of $0.81 per share for a yield of 4%.

The stock currently trades at 12.2 times trailing earnings, which is below the five-year P/E ratio of 12.7 times.

Which should you buy?

Both stocks are solid long-term investments and deserve to be in any portfolio.

If you only have the cash to buy one, I would go with Royal Bank today. The stock is less expensive on a P/E basis and offers a similar dividend yield.

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