Should You Buy TD Bank or Royal Bank Stock Now?

Investors who missed the big rally in financial stocks are wondering if this is a good time to add TD (TSX:TD) or Royal Bank (TSX:RY) to their TFSA and RRSP portfolios,

| More on:
question marks written reminders tickets

Image source: Getty Images

Canadian bank stocks took a beating in recent months amid rising recession fears. Investors who missed the big rally in financial stocks after the pandemic market crash are wondering if this is a good time to add TD (TSX:TD) or Royal Bank (TSX:RY) to their Tax-Free Savings Account (TFSA) and Retirement Savings Plan (RRSP) portfolios.


TD trades for $86 per share at the time of writing compared to $109 back in February. This is a significant pullback considering the company is on track to top 2021 earnings in 2022 and is sitting on significant cash reserves that will enable TD to ride out a downturn. The shares currently trade for a reasonable 11 times trailing 12-month earnings.

TD is making two significant investments in the United States to drive future growth. The bank is buying First Horizon, a retail bank, for US$13.4 billion. It’s a move that makes sense as the roughly 400 branches that will be added to the TD’s current operations are located in the southeastern part of the country. TD spent a good part of the past 15-20 years making acquisitions to build a strong U.S. business that currently runs from Maine all the way down the east coast to Florida. The addition of First Horizon will make TD a top-six bank in the American market. This means it should have the scale needed to compete and grow.

TD is also expanding its capital markets clout with the US$1.3 billion purchase of Cowen, an investment bank.

TD raised the dividend by 13% for fiscal 2022. Another double-digit increase is likely on the way for fiscal 2023. TD has a compound annual dividend-growth rate of about 11% over the past 25 years. The current dividend provides a yield of 4.1%.

Buying TD stock on dips has historically proven to be a savvy move for patient investors. A $10,000 investment in TD stock 25 years ago would be worth about $160,000 today with the dividends reinvested.

Royal Bank

Royal Bank trades near $125 per share right now compared to just under $150 at the 2022 high. As with TD, Royal Bank is a profit machine and fiscal 2022 earnings will beat the $16.1 billion in net income the bank generated last year. The stock currently sits at 11.4 times trailing 12-month earnings.

Royal Bank is also using excess cash to make strategic acquisitions. Earlier this year, Royal Bank announced a $2.6 billion deal to buy a wealth management firm in the United Kingdom. The purchase of Brewin Dolphin will make Royal Bank a top-three player in the wealth management market in the U.K. and Ireland.

Royal Bank increased its dividend by 11% late last year and then raised the payout by another 7% when the company reported fiscal second-quarter 2022 results. The distribution currently provides a 4% yield.

A $10,000 investment in Royal Bank stock 25 years ago would be worth about $170,000 today with the dividends reinvested.

Is one a better buy?

TD and Royal Bank pay attractive dividends that should continue to grow. The two stocks have generated similar returns over the past 25 years and should both be solid anchor picks for a TFSA or RRSP portfolio. If you only choose one, TD is the cheaper of the two right now and probably offers more upside potential over the medium term due to the big bets in the United States.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Bank Stocks

Bank Stocks

1 Dividend Stock Down 20% to Buy Right Now

This dividend stock provides investors with more growth towards all-time highs, as well as a superior dividend yield over 6%.

Read more »

sad concerned deep in thought
Bank Stocks

Better Bank Stock After Earnings News: TD or Royal Bank Stock?

RBC (TSX:RBC) stock and TD (TSX:TD) stock are the biggest Canadian banks, but which is the best after earnings were…

Read more »

data analyze research
Bank Stocks

The 1 Canadian Bank Stock I’m Watching This Week

Bank of Montreal (TSX:BMO) stock is starting to look dirt-cheap after its post-earnings fumble.

Read more »

Bank Stocks

Is TD Bank Stock a Buy Now After Solid Earnings?

TD deserves to be on your radar today.

Read more »

Bank Stocks

Is it Too Late to Buy Bank of Nova Scotia Stock?

Bank of Nova Scotia should be higher than it is today, and you get paid well to wait for the…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold After Solid Q1 2024 Earnings?

Royal Bank is up more than 20% from the 12-month low. Are more gains on the way?

Read more »

think thought consider
Bank Stocks

Why I Just Bought More of This Brilliant Bank Stock

I recently bought a foreign bank stock. Should you follow me or buy Canadian lenders like First National Financial (TSX:FN)…

Read more »

financial freedom sign
Bank Stocks

This Ridiculously Cheap Warren Buffett Stock Could Help Make You Richer

American Express stock is part of Warren Buffett's equity portfolio, and the stock trades at a steep discount in 2024.

Read more »