In many sectors, most investors are focused on the “better stock to buy.” In the Canadian financials sector, a strong and important area of the economy, this is perhaps the most pertinent question. After all, five major banks dominate the vast majority of financial activity in the Canadian economy. At first glance, they may all look the same.
But they’re not. Here’s my take on which of the following two banks I’d buy right now.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD), better known as TD to its customers and investors, is the largest Canadian bank with a larger international than domestic footprint. TD is known for its international retail operations, with more locations in the U.S. than Canada (mostly located on the East Coast). Accordingly, from this perspective, it’s often the bank many investors pick for its U.S. exposure.
However, TD stock is also a top dividend option for long-term investors, with a yield of 5.5%, far surpassing any sort of Canadian bond yield right now. And with a relatively stable stock price, TD has continued to see strong uptake from investors who are looking for financial stability right now.
Thanks to the strength of the U.S. and Canadian consumer, TD’s recent results aren’t surprising. The company showed adjusted diluted earnings per share growth of nearly 7%, supported by strength in its core operating businesses.
Bank of Nova Scotia
As more Canadian investors seek diversification and a broader approach to the financial landscape, TD Bank will certainly remain a top option to consider.
The company’s 6.6% yield is among the best in this space, and while its stock price has underperformed peers like TD that benefit from greater U.S. exposure, Scotiabank’s growth profile isn’t bad at all. The company provides investors with strong exposure to higher-growth Latin American economies. Accordingly, from a total return perspective, Scotiabank remains a top pick for many investors.
Scotiabank’s revenue growth of 5.5% over the past years was strong, and the lender also provided investors with an 11.3% return on equity in the most previous quarter. From a fundamental standpoint, this is a strong bank, also supported by Canada’s strong regulatory landscape.
Which is the better bet?
In my opinion, TD is a better pick for investors looking for a more U.S.-focused tilt in their portfolio. But for those looking to generate higher yields and potentially higher growth from this space, Scotiabank would be my top option.
It really comes down to an individual investor’s risk profile, in this case. Personally, I think a portfolio holding both banks can outperform the market over the long term.
