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Which Is the Better Bet as Banks Surge? Toronto-Dominion Bank vs. Canadian Imperial Bank of Commerce

After suffering a small slump in spring and much of the summer, Canadian bank stocks are back to putting smiles on investors’ faces. The late August earnings season was particularly lucrative, but it has seemingly taken almost a month for the positive sentiment to sink in. The banks have powered a run in the S&P/TSX Index that has seen it increase 3.3% month over month as of close on September 21.

Moody’s Corporation released a report on September 20 that hinted at a bearish outlook for Canadian banks, citing changing policy that could reduce possible government aid. Still, Moody’s heaped praise on the asset quality of Canadian banks and the superior underwriting standards.

For those wanting to get in on the good results, let’s compare the outlook of Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

Canadian Imperial Bank of Commerce

CIBC shares have increased 1% since releasing third-quarter results on August 24. Shares have declined 0.78% in 2017, but they have experienced growth of 7.8% year over year. CIBC has made a concerted effort to expand further into the United States. On September 18, CIBC announced that it was expanding its brand in the U.S. and would rename branches of recently acquired PrivateBancorp to CIBC Bank USA.

CIBC released an impressive earnings beat in August. Adjusting for the $5 billion purchase of PrivateBancorp, net income increased 4%. The bank saw impressive income growth in the wealth management division, up 10%, and saw an 8% increase in mortgage originations. CIBC boosted its dividend by 2% to $1.30 per share, representing a dividend yield of 4.8%.

Toronto-Dominion Bank

TD Bank stock has increased 6% since releasing its third-quarter results on August 31. The stock has climbed 4.2% in 2017, even after experiencing its biggest decline since 2009 after a story by the CBC broke in March, in which the bank was accused of unethical sales tactics. On September 18, TD Bank completed its acquisition of Scottrade Bank for $1.4 billion. TD Bank already has the largest U.S. footprint of any Canadian bank.

After an impressive earnings season from all Canadian banks, TD Bank released the strongest results of all. The bank posted a profit increase of 13%, representing its best performance in two years. Canadian and U.S. personal and commercial banking increased 14% each. Net income jumped 17% to $2.77 billion, or $1.46 per share, compared to $2.36 billion, or $1.24 per share, in Q3 2016. TD Bank stock still offers a dividend of $0.60 per share, representing a 3.5% dividend yield.

Which bank stock should you go with?

As of close on September 21, TD Bank has still not reached the stock price it had before the damaging CBC story in March. Materially, TD Bank has only improved since that date, and internal reviews conducted by the bank have yielded nothing that concerns upper management. Even after this recent surge, TD Bank is still the best-valued Canadian bank stock in the stock market.

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Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned. The Motley Fool owns shares of Moody's.

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