TFSA Users: Royal Bank (TSX:RY) vs. TD Bank (TSX:TD) in 2020

Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) released disappointing earnings to close out the year.

| More on:
The road to the future

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In late November I’d ranked the Big 5 banks before the latest trove of earnings were released. The two banks I will look at today, which are the two largest in Canada by market cap, were ranked at the bottom of my list. Both have been high performers in 2019, but I just didn’t dig their value ahead of their Q4 and full-year earnings releases. How is my snapshot looking after earnings season? More importantly, which of these behemoths is a better bet in 2020?

Royal Bank

Royal Bank (TSX:RY)(NYSE:RY) is the largest bank in Canada by market cap. Shares have dropped 2.9% over the past month as of early afternoon trading on December 6. It released its fourth-quarter and full-year results for 2019 on December 4.

The bank achieved record earnings of $12.9 billion for the full year. This was driven by strong earnings growth in personal and commercial banking and wealth management. Royal Bank has emerged as a leader in the mortgage space over the past two years. Canada’s housing market as a whole has rebounded nicely in 2019, and sales and prices are expected to increase into the early part of the next decade. Royal Bank posted average loan growth of 6% in residential mortgages this past year. This bodes well ahead of 2020.

More impressive was its wealth management performance. Royal Bank reported 13% growth in this segment largely due to higher average assets for fee-based clients. This reflected positive market movement and net sales that benefited Royal Bank’s size advantage.

Shares of Royal Bank have dropped 3.6% over the past week. Though Royal Bank posted record earnings for the full-year, its profit edged down in the fourth quarter compared to Q4 2018. Its insurance business and capital markets dragged down earnings in the final quarter. Royal Bank stock now possesses a price-to-earnings ratio of 11.9 and a price-to-book value of 1.9. This still puts it on the pricier end with regards to value compared to its Big 5 peers.

Toronto-Dominion Bank

In late August I’d discussed why I was avoiding Toronto-Dominion Bank (TSX:TD)(NYSE:TD) after its third-quarter 2019 earnings release. Shares of TD have dropped 3.7% over the past month. The second-largest bank in Canada released its fourth-quarter and full-year results for 2019 on December 5.

TD has been reliable over the past two years on the back of its U.S. banking strength. The U.S. Tax Cuts and Jobs Act has been a big positive for bank profits south of the border, but the benefits of this cut have waned in this year. U.S. Retail banking profit rose 7% year-over-year to $1.19 billion in Q4 2019. It increased 5% on an adjusted basis.

Though it had another strong quarter in the U.S., TD still disappointed in the fourth quarter. TD’s quarterly profit fell 3.5% year over year to $2.86 billion. Canadian retail banking only climbed $4 million from the prior year as increased loan and deposit volumes contributed to 5% revenue growth. Its capital markets segment also took a hit largely due to changes in its trading capabilities that resulted in derivative valuation charges in the quarter.

Shares of TD have plunged 3.5% over the past week. It boasts a comparable P/E ratio of 11.5 and a P/B value of 1.6. I’m throwing in with TD in early December due to its continued U.S. strength and marginal advantage in value. The stock also offers a quarterly dividend of $0.74 per share which represents a 4% yield.

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 Ambrose O'Callaghan owns shares of ROYAL BANK OF CANADA and TORONTO-DOMINION BANK.

More on Bank Stocks

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

Piggy bank next to a financial report
Bank Stocks

Scotiabank (TSX:BNS): A Stock to Buy and Hold Forever

Scotiabank stock is a well-diversified business, boasts a strong balance sheet, and is a reliable dividend stock, making it an…

Read more »

question marks written reminders tickets
Bank Stocks

Are Canadian Bank Stocks Oversold?

Canadian bank stocks are down more than 20% from the 2022 highs. Is this a good time to buy?

Read more »

money cash dividends
Bank Stocks

Market Selloff: Time to Hold Financial Stocks

Income investors should consider holding financial stocks for dividend safety in this period of uncertainty.

Read more »

Man holding magnifying glass over a document
Bank Stocks

TD Bank Stock Looks Severely Undervalued Going Into the 2nd Half of 2022

TD Bank (TSX:TD)(NYSE:TD) stock has been under pressure amid the TSX Index correction but may be among the best bounce-back…

Read more »

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »

You Should Know This
Bank Stocks

TD Bank Stock Faces Challenge From U.S. Senate!

Toronto-Dominion Bank's (TSX:TD)(NYSE:TD) latest deal is being blocked by the U.S. Senate.

Read more »