Should You Buy Toronto-Dominion Bank or Bank of Montreal to Play the Strong U.S. Dollar?

Both Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Montreal (TSX:BMO)(NYSE:BMO) have strong U.S. operations, but one offers a better play on the U.S. market.

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As the Canadian dollar continues to slide against its American counterpart, companies with significant U.S. dollar revenues are going to see a boost in earnings.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Montreal (TSX:BMO)(NYSE:BMO) both have large U.S. operations. Let’s take a look at the two companies to see if one offers a better opportunity right now.

Toronto-Dominion Bank

Toronto-Dominion has spent the last several years and nearly $17 billion building a vast retail operation along the U.S. east coast. With more than 1,300 U.S. branches, Toronto-Dominion is now one of the country’s 10 largest banks and serves customers from Florida right up to Maine.

The company earned a total adjusted net income of US$462 million ($509 million) from its U.S. retail division during the fourth quarter of 2014. Toronto-Dominion expects its U.S. operations to see modest earnings growth in 2015 as competition for loans continues to put pressure on net interest margins. In its last earnings report, Toronto-Dominion said it sees U.S. interest rates remaining low for most of 2015, with a potential increase near the end of the year.

The U.S. operations accounted for nearly 27% of Toronto-Dominion’s total adjusted net income in Q4 2014. CEO Bharat Masrani recently said he now has the scale he needs in the U.S. market and plans to focus on organic growth and cost control.

Toronto-Dominion has increased its dividend by more than 50% in the past three years. The current distribution of $1.88 yields about 3.5%, and the stock has risen more than 70% in the past five years.

Bank of Montreal

Bank of Montreal has decided to place its U.S. bets on the manufacturing-heavy Midwest. The company made its first foray into the U.S. in the early 1980s when it bought Illinois-based Harris Bankcorp. The company decided to double down in 2011 and spent $4.1 billion to buy Wisconsin-based Marshall and Ilsley Corp.

Bank of Montreal now has a well-known and trusted brand in the region. The main area of growth for the U.S. unit has been commercial lending. In fact, commercial loans jumped 21% in the fourth quarter of 2014 compared to the same period in 2013.

The company reported Q4 adjusted net income of $1.11 billion. The U.S. operation contributed $163 million, or about 14.6% of total earnings.

Bank of Montreal has increased its dividend five times in the past three years. The current distribution of $3.20 per share yields about 4.1%, and the stock has risen nearly 50% in the past five years.

Which should you buy?

Both banks will benefit from U.S. growth and the strengthening U.S. dollar, but Toronto-Dominion offers investors greater exposure to the U.S. retail market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

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