The month of November, specifically, and the year in general, has been fantastic for the financial sector of the TSX. The financial index has risen significantly since the start of the year, and the momentum is still quite strong.
Ironically, the best growth-oriented bank stocks (historically) weren’t at the top of the list this year. That title goes to Canadian Imperial Bank of Commerce, which has risen by over 40% since the beginning of 2024.
However, the largest and the smallest of the Big Six Canadian bank stocks remain the best long-term growth prospects in the sector, and if you are planning on buying just one of them, identifying their individual strengths and limitations might be a great starting point.
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The largest of the Big Six banks in Canada
Royal Bank of Canada (TSX:RY) is the largest bank and most valuable security in Canada and one of the largest financial institutes in North America. This magnitude, massive footprint, and enormous consumer base are some of the bank’s core strengths. It controls such a large segment of the local market that its influence can be significant.
Despite its size, the stock has maintained one of the best growth paces in the Canadian banking sectors in the last decade despite its size. It also offers financially healthy dividends at a decent yield and has a stellar dividend history. The current yield is about 3.2%.
Another considerable strength of the bank is its international footprint. About 37% of its revenue comes from outside Canada — 26% from the U.S. and 11% from its global business. It is in nine countries and is among the largest banking institutions in the English Caribbean. This level of foreign exposure can lead to promising opportunities.
As for performance, the bank rose by about 29% just this year. In the last decade, it returned 111% to its investors through price appreciation and over 210% via both growth and dividends.
The largest bank in Quebec
National Bank of Canada (TSX:NA) has deep roots in Quebec, and even today, when it has risen to become one of the six largest banks in the country, its presence is highly concentrated in the province. Last year, about 51% of its revenue came from Quebec alone.
The bank is growing its international footprint as well, but it’s nowhere near RBC right now, as only about 19% of its revenues came from outside Canada last year.
But it’s still an impressive number. Even more impressive is its growth pace and overall return potential. The stock rose 32% this year and 145% in the last 10 years. Its overall returns for the decade were over 270%. The current yield is 3.3%.
Foolish takeaway
The bull market phase of the two stocks is quite similar right now, but National Bank of Canada has a slight edge in the historical return patterns. If you are going by the last 10 year’s returns and by valuation, National Bank of Canada is a slightly better choice. If you want the safest of the two bets, Royal Bank is a better pick, but only by a little margin.
