The Motley Fool

Toronto Dominion Bank (TSX:TD) vs. Bank of Nova Scotia (TSX:BNS): Which Is the Better Bank for Your Buck?

Bank stocks are some of the best investments available on the TSX today. Offering safety, stability, and dividend income, they’re perennial favourites of buy-and-hold investors.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a particularly well-regarded TSX financial stock and by far the most popular as measured by Google search interest. With a fast-growing U.S. Retail business, it’s often touted as the Big Five bank with the strongest growth prospects. But it’s not the only bank stock on the TSX. And in fact, it may not even be the best. Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) offers comparable growth, a cheaper price, and a much higher dividend yield.

So, which bank stock should you invest in if you have to pick just one in 2018?

It helps to start by looking at growth.


Both TD and Bank of Nova Scotia had so-so growth in their most recent quarters. In TD’s case, earnings grew at 9.9% year over year, whereas Bank of Nova Scotia grew at 8%. When it comes to growth, I’m inclined to give the nod to TD, not only because it has slightly higher growth, but more importantly, because of its U.S. Retail business.

That segment of TD’s business grew at 44% year over year in Q3. Should this growth continue, it could send bottom-line growth higher as well, as the fast-growing U.S. business makes up a larger and larger percentage of TD’s earnings breakdown every year.


Both TD and Bank of Nova Scotia are highly profitable enterprises with excellent metrics. Bank of Nova Scotia has a higher profit margin at 32% (compared to TD’s 31%), while TD has the higher return on equity at 14.6% (compared to Bank of Nova Scotia’s 13%). I’d consider this category a toss-up.

Dividend income

Here’s where Bank of Nova Scotia really shines. Although both TD and Bank of Nova Scotia offer high dividends, the latter’s yield is much higher at 4.9% compared to TD’s 3.99%. While the difference may not appear large at first glance, the small numbers are deceptive: Bank of Nova Scotia’s yield is approximately 22% higher than TD’s right now.

Of course, there are a million ways that fact could change. One company could raise its dividend. The other could cut its dividend. Stock price fluctuations could result in yields going lower or higher. But for the time being, Bank of Nova Scotia offers more dividend income per dollar invested than TD does.

Bottom line

In many ways, Canada’s big bank stocks are interchangeable. All five have P/E ratios hovering around 10. All five are growing income at about 10% year over year. All five are highly profitable, safe, and secure.

However, on the balance, I give TD my vote for the best all-around TSX bank stock, simply because of the prospect of higher future growth stemming from its U.S. Retail business. But if a high dividend yield is what you’re looking for above all else, Bank of Nova Scotia is your best bet.

Our #1 Stock to Buy in 2018 (and Beyond!)

When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.

Every investor knows that. But many struggle to identify the best opportunities.

Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.

Our top advisor Iain Butler has just identified his #1 stock to buy in 2018 (and beyond).

The last time this stock went from the low point of its cycle to the peak… shares shot from $12 to $40 inside of 4 years. That’s an 300%-plus return. And if you missed out on that ride, today might just be your second chance.

Click here to claim Iain’s new report, absolutely FREE!

Fool contributor Andrew Button has no position in any of the stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.