Better Buy: Royal Bank Stock or National Bank of Canada?

Banks are among Canada’s most coveted blue-chip stocks, and there is a good reason for this. Not only are all aristocrats, but some banks also offer good growth potential

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If you want to buy a Canadian bank stock for growth, the two most appealing options are the largest and smallest banks in the Canadian Big Six. Both of them have shown decent growth potential in the last decade, and even though there is a clear difference in their growth pace, you should consider several other factors before deciding about one of the two stocks.

The largest bank in the Big Six

Royal Bank of Canada (TSX:RY), with an impressive market capitalization of about $191 billion, is not only the largest Canadian bank by market capitalization, but it’s also the largest publicly traded company in Canada. Like most other prestigious financial institutions, Royal Bank of Canada has a robust history and deep roots in the Canadian economy.

Also, its title as the largest Canadian bank is not limited to its market capitalization. It’s the top bank in Canada (and one of the top banks in the U.S.) across several categories, including high-net-worth clients. Its global footprint is also impressive — a presence in 29 countries, though most of its revenue comes from Canada.

But stellar credentials are only part of its appeal. It’s a long-standing Dividend Aristocrat with rock-solid payout ratios and a decent dividend yield of about 4%. As for growth, the stock rose by about 85% in the last ten years, and the total returns over the previous decade were at 175%.

The smallest bank in the Big Six

National Bank of Canada (TSX:NA) has a market capitalization of about $38 billion, making it the smallest bank in the Big Six. Despite being the smallest, it has captured a sizable portion of the market and caters to about 2.7 million customers, mainly from Quebec, Canada, where the bank has the largest footprint. About half of the company’s revenues come from Quebec alone.

The crowning achievement of this small bank is that it has been the most rewarding Canadian bank for investors. In the last 10 years, the bank has grown its market value by about 146%, over 70% higher than the capital growth of the following best grower — Royal Bank of Canada. The yield is quite decent as well, at 3.76%.

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Foolish takeaway

Based on the overall returns, capital-appreciation potential, and even considering the dividend yield (where the difference is minimal), National Bank of Canada seems like the obvious choice. However, it is no match for the weight, reach, stability, and market share of Royal Bank of Canada.

So, if that appeals to you more than the raw return potential and you think that the stability makes it a good fit for your portfolio from a retirement planning perspective, you may consider going for Royal Bank of Canada stock.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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