North American indices bounced back in a big way to kick off the month of March. The S&P/TSX Composite Index moved up 290 points on March 2, but it still has a long way to go to make up its steep losses in the previous week. Yesterday, I’d discussed several top stocks that were discounted after the week-long bloodbath. More volatility may be on the way, but now is the time for investors to keep their fingers on the trigger.
In late 2019, I’d looked at Canada’s top two banks after both stocks set off buy signals. Both stocks rebounded nicely into late February before succumbing to this broad sell off. Which is the better buy today? Let’s dive in and fine out.
Royal Bank (TSX:RY)(NYSE:RY) is the largest financial institution in Canada and the largest company by market cap on the TSX. Its shares have dropped 5.5% over the past week as of close on March 2, even after jumping 2.47% to open this week. The bank was the first of the Big Six to release its first-quarter 2020 results on February 21.
It was another strong start to the year for Canada’s top bank. Royal Bank reported record net income of $3.51 billion in Q1 2020 — up 11% year over year — and diluted earnings-per-share growth of 12%. The bank achieved this on the back of segment growth in Capital Markets, Investor & Treasury Services, Personal & Commercial Banking, and Corporate Support. Royal Bank is Canada’s largest mortgage lender, and its domestic book rose 8.6% from the prior year to $271.8 billion.
The bank also increased its quarterly dividend to $1.08 per share, which represents a solid 4.2% yield at the time of this writing. Shares of Royal Bank last possessed a favourable price-to-earnings (P/E) ratio of 11 and a price-to-book (P/B) value of 1.8. The stock climbed out of technically oversold territory by the end of the March 2nd trading day.
The second-largest financial institution in Canada is Toronto-Dominion Bank (TSX:TD)(NYSE:TD). Its stock has fallen 7% week over week as of close on March 2. The stock only moved up marginally in yesterday’s trading. This pushed shares into the red for 2020. TD Bank released its Q1 2020 results on February 27.
In the first quarter, TD Bank reported adjusted net income of $3.07 billion, or $1.66 per share, compared to $2.95 billion, or $1.57 per share, in the prior year. Net income in its Wholesale Banking segment shot up $298 million year over year. However, its typically strong U.S. Retail segment reported an 8% decline in net income to $1.14 billion. It suffered due to lower margins in a reduced rate environment. More bad news could be on the way, as reports indicate the U.S. Federal Reserve may move toward more easing in response to volatility in the wake of the coronavirus outbreak.
TD Bank raised its quarterly dividend payout to $0.79 per share, representing a 4.5% yield. Its stock boasts a better P/E ratio of 10 and a P/B value of 1.5. Shares still had an RSI of 24 at the time of this writing, which puts TD Bank in technically oversold territory.
Which is the better buy today?
Both banks have immaculate balance sheets and are reliable dividend payers. Right now, TD Bank offers a better dividend yield and more enticing value. However, its U.S. Retail margins could take a further hit if reports of further rate decreases are accurate. Investors should keep this in mind if they look to buy on the dip today.
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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.