Royal Bank of Canada Surpasses Toronto-Dominion Bank as Canada’s Largest Bank

Royal Bank of Canada (TSX:RY)(NYSE:RY) has surpassed Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to become the largest bank in the country. Is RBC now the top bank stock to own?

| More on:
The Motley Fool

Royal Bank of Canada (TSX:RY)(NYSE:RY) has reclaimed the title of largest bank in Canada for the first time in five quarters, dropping Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to the number two spot, and it did so by adding approximately $146.15 billion of assets in the first quarter of fiscal 2015. Both banks became the first institutions in Canada to surpass the milestone of $1 trillion in total assets, but Royal Bank now has the edge to the tune of approximately $6.54 billion as of January 31.

Even though Royal Bank is now the country’s largest bank, this does not immediately make it the best investment option in the industry. Let’s take a closer look at the quarterly earnings results of both companies to determine which posted stronger first-quarter earnings, and then use valuations to determine which stock represents the better long-term investment opportunity today.

Royal Bank of Canada: $1.09 trillion in assets

At the conclusion of the first quarter of fiscal 2015, Royal Bank of Canada’s assets totaled approximately $1.09 trillion, an increase of 15.5% from the fourth quarter and 20.1% from the year-ago quarter. The bank’s total deposits increased 10.1% to $654.71 billion, its total loans and acceptances increased 7.9% to $459.99 billion, and its total common equity increased 13.7% to $51.31 billion compared to the year-ago period.

Here’s a summary of five other key statistics and ratios from the report compared to the year-ago period:

  1. Adjusted earnings per share increased 14.6% to $1.65
  2. Revenue increased 14% to $9.64 billion
  3. Adjusted efficiency ratio contracted 50 basis points to 52.1%
  4. Return on common shareholders’ equity improved 40 basis points to 19.3%
  5. Book value per share increased 13.7% to $35.59

Toronto-Dominion Bank: $1.08 trillion in assets

Toronto-Dominion Bank’s total assets rose to $1.08 trillion in the first quarter of fiscal 2015, an increase of 12.5% from the fourth quarter and 17.4% from the year-ago quarter. The company’s total deposits increased 19.7% to $672.77 billion, its total loans managed increased 12% to $507.65 billion, and its total common equity increased 16.2% to $62.63 billion compared to the year-ago period.

Here’s a summary of the same five key statistics and ratios from the report compared to the year-ago period:

  1. Adjusted earnings per share increased 5.7% to $1.12
  2. Adjusted revenue increased 4.1% to $7.61 billion
  3. Adjusted efficiency ratio improved 130 basis points to 53.8%
  4. Adjusted return on common shareholders’ equity contracted 110 basis points to 15.1%
  5. Book value per share increased 17.4% to $31.60

Which bank should you invest in today?

Royal Bank of Canada and Toronto-Dominion Bank are the two largest banks in Canada in terms of total assets, and both posted very strong first-quarter earnings results. However, when directly comparing the results, I think Royal Bank of Canada’s quarter was more impressive, especially in terms of earnings per share, revenue, and total asset growth.

In order to determine which stock represents the better long-term investment opportunity today, let’s take a look at a chart of each stock’s forward price-to-earnings multiples based on fiscal 2015’s and fiscal 2016’s earnings per share estimates, their five-year average price-to-earnings multiples, their market-to-book ratios, and their dividend yields at current levels.

Metric Royal Bank of Canada Toronto-Dominion Bank
Forward P/E Multiple – 2015 11.8 12.0
Forward P/E Multiple – 2016 11.2 11.3
Market-to-Book Ratio 2.2 1.7
Dividend Yield 4% 3.8%

Sources: Royal Bank of Canada and Toronto-Dominion Bank

With all of the information provided above, I think Royal Bank of Canada posted stronger first-quarter results and I think its stock represents the better long-term investment opportunity today. Foolish investors should take a closer look and strongly consider establishing long-term positions.

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 Joseph Solitro has no position in any stocks mentioned.

More on Bank Stocks

Bank sign on traditional europe building facade
Bank Stocks

3 Bank Stocks That Are Too Cheap to Ignore

These stocks appear attractive today and deserve to be on your radar.

Read more »

Bank Stocks

4 Things to Know About TD Stock in November 2022

Should you buy TD stock?

Read more »

Bank sign on traditional europe building facade
Bank Stocks

2 Bank Stocks to Load Up on in a Recession

Here are two top Canadian bank stocks investors may want to consider, particularly as we potentially head into a recession.

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Canadian Bank Stocks: Time to Buy the Underdogs

Consider buying National Bank of Canada (TSX:NA) stock and another banking underdog on the way down.

Read more »

think thought consider
Bank Stocks

Should You Invest in Scotiabank Right Now?

There are plenty of great discounted stocks to buy right now, like Bank of Nova Scotia (TSX:BNS). Here's why you…

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

The CRA Just Increased Tax Breaks – Here’s How to Invest for More Savings

Savings from tax breaks can be leveraged to buy blue-chip TSX stocks such as the National Bank of Canada in…

Read more »

Various Canadian dollars in gray pants pocket
Bank Stocks

2 Steady Blue-Chip Stocks to Earn Passive Income in 2023

Canadian blue-chip banking stocks such as BMO and BNS are trading at attractive multiples and offer tasty dividends to investors.

Read more »

Chalk outline of two arrows pointing in opposite directions
Bank Stocks

Should You Buy TD Bank Stock or Bank of Nova Scotia Stock Now?

Bank stocks look undervalued right now. Is TD Bank or BNS a better buy?

Read more »