Canadian banks are some of the best purchases to make on the TSX today, especially when looking for a great dividend stock. And among them, Toronto Dominion Bank (TSX:TD) is certainly on that list.
Yet when it comes to finding a great dividend stock with a high yield, I’m not sure I’d choose TD stock first. Here’s why and what I’d pick up instead.
TD stock
The thing with TD stock is that it’s actually doing pretty well. While this is definitely a good thing, the issue is that it doesn’t offer as much value compared to its peers in terms of share price. The stock is still safe, however, with provisions for loan losses that all the Canadian banks have on hand.
TD stock, however, also has a lot of exposure to the United States. This is a good and bad thing. When the markets drop in the United States, this can cause the bank to need to dip into those provisions more than its peers. That’s the downside. The upside is that the United States tends to recover far quicker than Canada or most other countries. Therefore, the stock should still recover fairly quickly even should the U.S. end up in a recession.
Finally, there’s the dividend. Granted, TD stock has increased its dividend many times over the years, including by substantial amounts after the pandemic. Even so, the bank looks to grow by expanding into different areas of the market and diversifying. This has meant that the dividend growth we see from TD stock isn’t as good as its peers.
Consider BMO stock
That’s why I would consider Bank of Montreal (TSX:BMO) over TD stock today as a great dividend stock. BMO stock still offers the provisions and diversification but with more of a focus on long-term returns and its dividend policy.
BMO stock in the last few years has expanded into very specific and lucrative offerings. Before the rise in interest rates, the company expanded in the United States through its purchase of Bank of the West. This gave them exposure, but without the threat of its bank struggling should a recession hit the United States. Furthermore, BMO stock has become the go-to bank when it comes to exchange-traded funds (ETF), offering every type under the sun and more.
As for the dividend, BMO stock offers one of the highest payouts as well as one of the highest yields. After the pandemic, the company raised its dividend by a whopping 25% to make up for lost time! This was a huge bonus for investors and can still be taken into consideration when purchasing today.
The comparison
TD stock currently offers a dividend yield of 4.58%, which comes to $3.84 per share. It trades at 10.55 times earnings as well, with shares down 2% in the last year. Meanwhile, BMO stock has a 5.19% dividend yield as of writing, coming to $5.88 per share on an annual basis. It also trades at 11.26 times earnings, putting it in value territory, with shares down 14% in the last year.
This means you’re getting a great dividend, a stock that’s bound to recover to pre-drop prices and bring in more returns in the next year or so. Canadian banks across the board recover after downturns, so in the case of BMO stock, you’re simply getting more bang for your buck, which is why I’d consider it over TD stock on the TSX today.
