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Which of the Big 3 Banks Should You Buy Today?

Canadian banks are considered by most to be must-have investments because of their financial stability and because they face limited competition. I agree with this investment philosophy and think that all Foolish investors should own shares of at least one financial institution. With this in mind, let’s take a look at the three largest banks in Canada to determine which one you should buy.

1. Royal Bank of Canada

Royal Bank of Canada (TSX:RY)(NYSE:RY) is the largest bank in Canada, with approximately $1.09 trillion in total assets as of the end of its first quarter on January 31.

At today’s levels, RBC’s stock trades at just 12.2 times fiscal 2015’s estimated earnings per share of $6.56 and only 11.6 times fiscal 2016’s estimated earnings per share of $6.90, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 13.5. The stock also trades at just 2.25 times its book value per share of $35.59, which is a slight discount compared to its market-to-book value of 2.38 at the conclusion of fiscal 2014.

In addition, RBC pays a quarterly dividend of $0.77 per share, or $3.08 per share annually, giving its stock a 3.8% yield at current levels. It has also increased its dividend eight times in the last four years, showing that it is deeply committed to maximizing shareholder returns.

2. Toronto-Dominion Bank

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the second-largest bank in Canada, with approximately $1.08 trillion in total assets as of the end of its first quarter on January 31.

At current levels, TD Bank’s stock trades at just 12.3 times fiscal 2015’s estimated earnings per share of $4.50 and only 11.5 times fiscal 2016’s estimated earnings per share of $4.82, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 13.6. It also trades at a mere 1.75 times its book value per share of $31.60, which is very inexpensive compared to its market-to-book value of 1.95 at the conclusion of fiscal 2014.

Additionally, TD Bank pays a quarterly dividend of $0.51 per share, or $2.04 per share annually, giving its stock a 3.7% yield at today’s levels. The company has also increased its dividend nine times in the last four years, making it one of the top dividend-growth plays in the banking industry today.

3. Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is the third-largest bank in Canada, with approximately $851.9 billion in total assets as of the end of its first quarter on January 31.

At current levels, Bank of Nova Scotia’s stock trades at just 11.4 times fiscal 2015’s estimated earnings per share of $5.65 and only 10.7 times fiscal 2016’s estimated earnings per share of $6.04, both of which are inexpensive compared to its five-year average price-to-earnings multiple of 12.3. The stock also trades at just 1.66 times its book value per share of $38.75, which is a discount compared to its market-to-book value of 1.9 at the conclusion of fiscal 2014.

Furthermore, Bank of Nova Scotia pays a quarterly dividend of $0.68 per share, or $2.72 per share annually, giving its stock a 4.2% yield at current levels. It has also increased its dividend eight times in the last four years, and its consistent free cash flow generation could allow for another increase in the next few quarters.

Which of the big three Banks belong in your portfolio?

Royal Bank of Canada, Toronto-Dominion Bank, and Bank of Nova Scotia represent three of the top value and dividend-investment plays in the financial sector today. Foolish investors should take a closer look and strongly consider establishing long-term positions in one of them.

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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.

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