Canadian investors often turn to the banks when searching for new stocks to add to their portfolios.
Let’s take a look at Bank of Montreal (TSX:BMO)(NYSE:BMO) and Royal Bank of Canada (TSX:RY)(NYSE:RY) to see if one is a better bet right now.
Bank of Montreal
Canada’s oldest bank continues to generate solid results in a tough economic climate.
What’s the story?
The bank has a diversified revenue stream with assets spread out across different segments of the industry. It also has a strong presence in the United States.
Bank of Montreal reported fiscal Q2 2016 adjusted net income of $1.152 billion–up 1% compared with Q2 2016. For the first six months of the year, adjusted net income was up 7%.
The Canadian personal and commercial banking operation generated 43% of fiscal Q2 2016 net income. The U.S. group contributed 20% of the profits. The capital markets segment kicked in 21% of income, and the wealth management division added the remaining 16%.
Bank of Montreal’s U.S. business was the standout, earning $279 million in the quarter–up 27% from Q2 2015.
The company recently purchased GE Capital’s transport finance business, and those assets should drive the U.S. contribution even higher in the coming years.
Bank of Montreal pays a quarterly dividend of $0.86 per share for a yield of 4.1%.
The stock currently trades at 12.6 times trailing earnings, which is higher than the five-year P/E average of 11.3 times.
Royal Bank
Royal Bank also has a diversified revenue stream that is supporting strong results.
Fiscal Q2 2016 net income was $2.573 billion–up 5% compared with the same period last year. For the first half of 2016, Royal Bank has already earned more than $5 billion.
Personal and commercial banking contributes 52% of the company’s profits. Capital markets add 23%, wealth management kicks in 13%, insurance generates 7%, and the remaining 5% comes from investor and treasury services.
Royal Bank is returning to the U.S. market in a big way with its recent US$5 billion purchase of California-based City National, a private and commercial bank.
The addition of City National gives Royal Bank a strong platform to expand its reach in the sector, and investors could see more acquisitions in the space in the coming years.
Royal Bank pays a quarterly dividend of $0.81 per share for a yield of 4%.
The stock currently trades at 12.2 times trailing earnings, which is below the five-year P/E ratio of 12.7 times.
Which should you buy?
Both stocks are solid long-term investments and deserve to be in any portfolio.
If you only have the cash to buy one, I would go with Royal Bank today. The stock is less expensive on a P/E basis and offers a similar dividend yield.
