Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) often come up as top picks for Canadian investors.

Let’s take a look at the two banking giants to see if one is more attractive right now.

Royal Bank

Royal Bank announced fiscal Q3 2016 adjusted net income of $2.66 billion–up 7% compared with the same period last year.

Net income from Canadian banking rose 4%, wealth management earnings jumped 36%, and the capital markets division posted a 17% year-over-year gain.

Royal Bank is looking to the U.S. to help drive future growth. The company recently acquired California-based City National, a private and commercial bank, for US$5 billion. The deal gives Royal Bank a solid platform to expand its reach in the segment, and investors could see further U.S. acquisitions in the coming years.

On the risk side, Royal Bank has about 2% of its total loan book exposed to energy companies, which is higher than TD, but lower than the smaller peers.

The bank’s reliance on wealth management and capital markets activities for a significant part of its revenue is also worth watching, as earnings in these segments can be volatile when things get ugly in the financial markets.

Management just raised the quarterly dividend by 2% to $0.83 per share. That’s good for a yield of 4.1% at the current price.

Royal Bank trades for 11.8 times trailing earnings, which is lower than the 12.7 times the stock has averaged over the past five years.


TD also delivered solid results for fiscal Q3 2016. Adjusted earnings rose 6% to $2.4 billion as the U.S. operations helped offset a slight drop in earnings from the Canadian retail business.

TD has invested heavily in the U.S. over the past decade and now has more branches south of the border than it does in Canada. The U.S. division saw net income jump 14% in the latest quarter compared with the same period last year.

The diversified revenue stream provides a nice hedge against shocks on the Canadian side of the business, such as the hit the company’s insurance arm took last quarter as a result of the Albertan wildfires.

TD is often viewed as a safer pick than Royal Bank because it gets the majority of its revenue from bread-and-butter retail operations and has low direct exposure to oil and gas companies. Less than 1% of the company’s total loan book is tied to the energy sector.

TD pays a quarterly dividend of $0.55 per share for a yield of 3.8%.

The stock currently trades at 13.3 times trailing earnings, about in line with the five-year average.

Is one a better investment?

Both stocks are solid long-term picks for a TFSA account and are pretty much equal in their appeal as investments.

TD relies less on volatile segments, such as capital markets, so it tends to hold up better when the broader equity market pulls back. As a result, the stock is a bit more expensive and offers a slightly lower yield. If you want the more conservative name, go with TD.

Royal Bank’s big move into the U.S. market could provide a nice boost to growth in the coming years. If you can handle a bit more volatility, Royal Bank looks like a solid pick today.

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