TD vs. Scotiabank: Which Is the Better Dividend Stock to Buy Now?

Canadian investors looking for the top bank stock to buy for its dividend yield have a number of great options to choose from.

Should investors go with Toronto-Dominion Bank (TSX:TD), given its size and importance in its domestic Canadian market and the exposure it provides to the U.S. economy?

Or is Bank of Nova Scotia (TSX:BNS) the better pick, given its similar geographical diversification (though with a greater focus on higher-growth Latin America) and its higher dividend yield?

Let’s compare and contrast the two.

TD Bank

I’ve long thought TD Bank is the way to go for investors looking for a solid mix of total returns (capital appreciation plus dividend upside). The company’s current dividend yield of 3.7% is meaningful, but the chart above tells a story all of its own. TD has been among the best Canadian bank stocks for investors looking for consistent capital appreciation over time. That goes double for those who zoom out on this stock’s truly long-term performance.

This factor, which I’d argue is driven by the company’s well-timed acquisitions of U.S. banks during times of crisis in the past, has led TD to become my top growth pick in the banking sector.

That said, I’m not sleeping on the company’s 3.7% yield. I just think that the market has clearly identified TD’s past growth prowess and factored that into its valuation. This is a meaningful yield, and one that can create significant passive income streams for long-term investors banking on future dividend growth.

Scotiabank

With a whopping 4.7% dividend yield, investors get around 27% more yield up front (on a comparative basis) when buying Scotiabank over TD stock. And it’s worth noting that investors who still want solid total returns get a company with a nice growth profile in its own right. The company’s growing operations in key Latin American nations could provide even higher growth than TD over time, though that’s not historically been the case.

In this market, I think investors are looking more for security and stability than pure growth. In that regard, I can understand why Scotiabank continues to trade at an attractive multiple compared to most of its peers.

That said, I’ve long thought Scotiabank could be the better pick purely on a dividend basis, and perhaps over a medium-term time horizon.

There really aren’t any wrong answers here – it comes down to individual investor preferences. Right now, TD would be my pick of the two, but that could easily change in a few years’ time.

We’ll see.