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Better Buy: Toronto-Dominion Bank vs. Bank of Nova Scotia

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are set to release earnings for the third quarter of 2017 late this month. Which bank offers the best bet for investors in the second half of 2017?

Toronto-Dominion Bank

TD Bank stock has declined 3% so far in 2017. The share price took a major hit — the worst since the height of the Financial Crisis in 2009 — when CBC released a report in early March on supposed pressure sales undertaken by TD retail staff.

On May 25, the bank released its second-quarter earnings which beat analyst expectations. It saw earnings per share rise to $1.34 in the quarter from $1.20 in Q2 2016. Net income increased to $2.5 billion from $2.1 billion in the same period the year previous. The bank saw an 18% profit growth in its United States retail banking. Its investment banking business also saw marked improvement that powered the recent results.

TD Bank responded to the Bank of Canada rate hike on July 12 by increasing its prime lending rate 25 basis points to 2.95% — mimicking a move made by the other major Canadian banks. Improved lending margins should help to stave off a potential cool down in the volume of residential mortgages after regulations were introduced by the Ontario government in late April.

Bank of Nova Scotia

The share price for Bank of Nova Scotia has gained 4% in 2017 and 17% year over year. On May 30, the bank released its second-quarter earnings which beat analyst expectations. Earnings per share rose to $1.62 compared to $1.46 in Q2 2016. The bank reported net income of $2.1 billion from $1.6 billion in the same period the year previous.

Bank of Nova Scotia has the biggest foreign presence of the big banks with a sizable international strategy focused on Latin America. This region provided strong growth that sparked impressive results for the bank. Bank of Nova Scotia also increased its prime lending rate to 2.95% in response to the Bank of Canada’s rate decision. It has also explored an increase in fixed mortgage rates.

What is the better buy?

Both institutions beat expectations in successive second-quarter earnings reports in May. Bank of Nova Scotia boasts a dividend of $0.76 per share — a dividend yield of 3.91%. It has managed to fend off sour economic news as its strategic push into Latin America is paying off early. Latin America is expected to register modest economic growth in 2017 — forecast at 1-1.5%. Bank of Nova Scotia is focused on the Pacific Alliance, comprising of Mexico, Peru, Chile, and Columbia. Though these nations offer a slower rate of growth than giants Argentina and Brazil, they are bereft of major political turmoil.

TD Bank offers a dividend of $0.60 per share — representing a 3.73% yield. Fallout from the March CBC report combined with economic headwinds in housing and energy have prevented the stock from mounting a comeback. As economic conditions continue to show signs of improvement following impressive May GDP growth, TD Bank is a fantastic medium and long play with its third-quarter results looming.

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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned.

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