Should You Put Royal Bank of Canada or Toronto-Dominion Bank in Your RRSP?

Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are two of the top names Canadians consider when choosing stocks for their RRSP accounts.

Let’s take a look at Canada’s banking giants to see if one is a better choice right now.

Royal Bank

Royal Bank earned $9.92 billion in adjusted net income last year, up 9% from 2014. That’s an insane amount of money, and it demonstrates how a balanced revenue stream is helping the bank navigate through the current economic headwinds.

Royal Bank gets 52% of its income from personal and commercial banking activities and 24% from its capital markets group. The rest is split between wealth management, insurance, and investor and treasury services.

Many bank investors are concerned about loans to energy companies. In its Q4 2015 report, Royal Bank said it had $7.7 billion in drawn energy exposure, which translates into 1.6% of its total loans.

Housing is another area analysts are watching carefully. Royal Bank finished the fourth quarter with $205 billion in Canadian residential mortgages on the books. Uninsured loans represent 62% of the portfolio and the loan-to-value ratio on that component is 55%.

Royal Bank is well capitalized with a CET1 ratio of 10.6%.

The stock pays a quarterly dividend of $0.79 per share that yields about 4.9%.


TD also raked in the big bucks last year with fiscal 2015 net income of $8.75 billion, up 8% over 2014.

TD gets 91% of its earnings from retail-banking activities, driven by large personal and commercial banking operations in both Canada and the United States. The remaining 10% comes from wholesale banking and the company’s U.S.-based TD Ameritrade unit. As a point of interest, TD operates more branches south of the border than in Canada.

TD’s drawn energy exposure at the end of Q4 2015 was $3.8 billion, less than 1% of total loans.

On the mortgage side, TD finished fiscal 2015 with $246 billion in Canadian residential housing loans. Uninsured loans represent 44% of the portfolio and the loan-to-value ratio on that group is 61%.

TD has a CET1 ratio of 9.9%.

The stock pays a quarterly dividend of $0.51 per share that yields 4.2%.

Which should you buy?

Both Royal Bank and TD are solid long-term investments that deserve to be a core part of any RRSP portfolio. If you want the safer play, TD probably carries less risk in the current environment.


TD has less exposure to the energy sector, and it doesn’t rely heavily on revenue from the more volatile segments of the banking industry, such as capital markets. TD is carrying more mortgages, but a higher percentage of the loans are insured, so a total meltdown in the Canadian housing market would, in theory, be less punitive for TD than for Royal Bank. Most analysts expect a gradual housing pullback, so the overall mortgage portfolio looks pretty solid at both companies.

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

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