RRSP Investors: Should You Buy Bank of Nova Scotia (TSX:BNS) or Toronto Dominion Bank (TSX:TD) Stock?

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Toronto Dominion Bank (TSX:TD)(NYSE:TD) still appear attractively priced. Is one a better RRSP bet right now?

| More on:
Piggy bank next to a financial report

Image source: Getty Images.

Canadians are lining up their RRSP contributions before the upcoming deadline, and that tends to spark a search for top-quality stocks to add to their holdings.

The Big Five banks traditionally turn up as preferred picks, and the pullback the sector endured through the end of 2018 has created some interesting buying opportunities.

Let’s take a look at Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Toronto Dominion Bank (TSX:TD)(NYSE:TD) to see if one might be an attractive pick for your self-directed RRSP today.

Bank of Nova Scotia

Investors sometimes skip Bank of Nova Scotia in favour of its larger Canadian peers. Part of the reason is, people feel more comfortable buying the industry leaders, and the other concern is connected to the bank’s significant exposure to Latin America.

Bank of Nova Scotia has spent a good part of the past decade making strategic acquisitions in Mexico, Peru, Colombia, and Chile. At first glance, that might appear odd, but the strategy makes sense when you dig deeper into the story. These four countries make up the Pacific Alliance, which is a trade bloc created to enable the free movement of goods and capital among the four countries. More than 200 million people live in the combined markets, providing attractive opportunities where penetration of banking services is lower than in Canada.

At home, Bank of Nova Scotia is also boosting its wealth management division. The company made two major acquisitions last year that should enable Bank of Nova Scotia to better compete with TD and Royal Bank in the sector.

The stock is up from the December low of $67 to $73 per share, but still trades well off the $82 high over the past year. At less than 11 times trailing earnings, Bank of Nova Scotia still looks cheap.

Investors who buy today can pick up a yield of 4.6%.

TD

TD also has a large international presence, but it decided to focus heavily on the United States. A string of acquisitions that began more than a decade ago has resulted in TD becoming a top 10 bank in the country with locations running from Maine right down the east coast to Florida.

The U.S. division, which also includes TD’s stake in TD Ameritrade, contributes about a third of the company’s profits. Lower income taxes and improved net interest margins due to rising interest rates helped drive strong earnings south of the border in fiscal 2018, and the trend should continue.

TD has one of the best track records of dividend growth in the TSX Index. The company has raised the payout by a compound annual rate of roughly 11% over the past 20 years. The current payout provides a yield of 3.7%.

At the time of writing, TD trades at 12 times trailing earnings.

Is one a better bet?

Bank of Nova Scotia and TD should both be solid buy-and-hold picks for a self-directed RRSP portfolio.

If you can handle a bit of extra risk, Bank of Nova Scotia is cheaper and might deliver better gains once the market decides to give it a multiple that is comparable to TD. Otherwise, TD is widely viewed as the safest pick among the big Canadian banks and still trades at a reasonable price.

Other opportunities are also worth considering today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »