Royal Bank of Canada (TSX: RY) and Toronto-Dominion Bank (TSX: TD) moved considerably higher in the past three months. Investors who missed the bounce are wondering if RY stock or TD stock is still undervalued and good to buy today for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Royal Bank
Royal Bank trades near $180 per share at the time of writing compared to less than $150 a year ago.
The bank is benefitting from its $13.5 billion takeover of HSBC Canada in 2024. The deal added nearly 800,000 clients and provided Royal Bank with a platform to expand its international banking offerings.
Royal Bank delivered solid fiscal second-quarter (Q2) 2025 financial results. Adjusted net income came in at $4.5 billion in the quarter, up 8% compared to the same period last year. Adjusted return on equity (ROE) was 14.7%, down slightly from fiscal Q2 2024 but still very strong. Royal Bank finished the quarter with a common equity tier-one (CET1) ratio of 13.2%. This is well above the level required by regulators and means Royal Bank has ample cash on hand to ride out some market turmoil or deploy funds for additional acquisitions. Provisions for credit losses (PCL) increased $504 million to $1.42 billion in the quarter compared to the same timeframe in 2024. High interest rates continue to put pressure on clients who are carrying too much debt. The PCL number is moving in the wrong direction, but the amount is very small compared to Royal Bank’s overall loan portfolio.
Investors who buy Royal Bank shares at the current price can get a dividend yield of 3.4%.
TD Bank
TD’s share price is up 33% in 2025 to its current level near $101. This is a welcome recovery for long-term investors who watched the share price tumble from $108 in early 2022 to as low as $74 in December last year.
TD ran into trouble with American regulators last year for not having adequate systems in place to detect and prevent money laundering at some of the U.S. branches. Investigations led to fines of more than US$3 billion. Regulators also placed an asset cap on TD’s American business. This derailed TD’s growth plan. The bank spent billions of dollars over the past two decades to buy regional banks in the U.S. from Maine right down the East Coast to Florida.
TD put a new CEO in place in early 2025, and the bank has since sold off its remaining holdings of Charles Schwab. Proceeds from the sale came in around $21 billion. TD is allocating about $8 billion for share buybacks and will use the rest of the funds for other initiatives. The cash hoard gives TD ample firepower to compete aggressively for attractive mortgage holders in Canada who are facing renewal of their fixed-rate home loans. Roughly two million of these mortgages are up for grabs over the course of 2025 and 2026. Securing the mortgage can lead to the sale of other products.
TD’s adjusted net income for fiscal Q2 2025 came in at $3.6 billion, down slightly from the $3.8 billion it earned in the same quarter last year. Adjusted return on equity was 12.3% in the quarter, down from 14.5% a year ago. PCL increased to $1.34 billion from $1.07 billion, reflecting the challenges faced by some clients in the current rate environment. As with Royal Bank, the PCL number is low relative to the total loan book. TD finished the quarter with a CET1 ratio of 14.9%.
Investors who buy TD stock at the current price can pick up a dividend yield of 4.1%.
Is one a better pick?
Valuations are high, and the full effect of tariffs might start to hit the economy heading into 2026, so investors should be cautious. That being said, Royal Bank and TD deserve to be core picks for a buy-and-hold portfolio. Income investors might want to make TD the first choice for the higher yield. Royal Bank, however, has proven to be more stable and is a star when it comes to return on equity.
I would probably split a new investment between the two stocks at the current share prices.
