TFSA Investors: Should You Buy Toronto-Dominion Bank or Inter Pipeline Ltd.?

Canadians are searching for top stocks to put in their TFSA accounts.

Let’s take a look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Inter Pipeline Ltd. (TSX:IPL) to see if one is a better pick right now.


TD continues to put up solid numbers despite facing some economic headwinds. Adjusted net income came in at $2.3 billion for fiscal Q2 2016, up 5% compared with the same period last year.

Retail banking makes up the largest part of TD’s operations. The Canadian business generates 61% of the company’s net income, while the U.S. retail operation kicks in another 25%.

The presence south of the border provides a nice hedge against a struggling Canadian economy and the surge in the value of the greenback against the loonie has helped boost results. At the moment, every U.S. dollar in profit converts to CAD$1.32.

Bank investors are watching the energy and housing sectors for signs of trouble.

In the case of TD, the bank has less than 1% of its total loan book directly exposed to oil and gas companies, so there is little risk on that side.

As for mortgages, TD has just under $250 billion in Canadian residential loans on the books. That’s a significant number, but 53% of the portfolio is insured and the loan-to-value ratio on the rest is 58%. This means the housing market would have to plunge significantly before TD takes a serious hit.

The bank raised its dividend by 8% earlier this year. Investors who buy today can pick up a yield of 3.9%.

Inter Pipeline

Inter Pipeline owns a natural gas liquids (NGL) extraction business, conventional oil pipelines, oil sands pipelines, and a European-based liquids storage group.

With the exception of the NGL operation, the company is performing very well.

Inter Pipeline transports 15% of western Canadian conventional oil output and 35% of the country’s oil sands production. The addition of new assets in both segments last year has increased throughput at a healthy rate and helped the company generate a 5% year-over-year gain in Q1 funds from operations (FFO).

Over in Europe the company is enjoying utilization rates of 98%, and FFO from the group hit a record $31 million in the first quarter, up 53% compared with the same period last year.

Inter Pipeline pays a monthly dividend of $0.13 per share. That’s good for a yield of 5.7%.

Which should you buy?

TD and Inter Pipeline are both solid TFSA picks. If you only have the cash to buy one, I would go with Inter Pipeline today. The stock offers a better yield and investors could see significant gains in the stock price if the energy recovery picks up steam.

TD was on sale earlier this year, but the rally over the past five months has likely taken away most of the near-term upside potential.

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

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