Surprise! Canada’s Big Banks Beat Estimates. Here’s Why Q2 Could Do the Same.

All six big banks beat estimates. These three look like the best investments now.

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Key Points
  • Royal Bank is the steadier bellwether, priced for quality, with a reliable dividend and diversified earnings streams.
  • TD trades cheaper with more sentiment upside, but U.S. execution and regulatory headlines can drive volatility.
  • National Bank can quietly outperform when capital markets and fee income stay strong, even if lending slows.

Canadian bank earnings season delivered again. All six Big Six banks beat analyst estimates in Q1 2026, collectively generating $19 billion in profit — with National Bank surprising by 9%, RBC by 6%, and wealth management emerging as the standout driver across the group.

The market partially rewarded the beats but didn’t fully re-rate the sector, which is often how it works: the first earnings surprise gets priced in cautiously, and the real upside comes when investors realise the trend is repeating. For Canadian investors who want to own the banks before Q2 adds another chapter to the story, these three banking stocks are worth a close look.

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Source: Getty Images

RY

Royal Bank of Canada (TSX: RY) runs the country’s largest bank platform across personal banking, commercial banking, capital markets, and wealth management, and diversification matters when one division hits a soft patch. In Q1 2026, RBC posted record revenue of $18 billion, beating the $17.36 billion forecast by nearly 4%, with adjusted EPS of $4.08 against a $3.85 estimate — a 6% surprise. Wealth management was the standout, with net income surging 32% to $1.3 billion as assets under administration hit $1.02 trillion. The bank is guiding to full-year 2026 EPS of $11.45 and dividend payments for 54 consecutive years underpin the 2.8% yield.

The one note of caution: Credit losses remain elevated, particularly in Ontario residential mortgages, and the bank’s own chief risk officer flagged a “plateau of relatively elevated credit losses” for 2026. That is worth watching but not necessarily a reason to stay away — it is already priced into the cautious market reaction to a genuinely strong quarter.

TD

Toronto-Dominion Bank (TSX: TD) offers a different flavour of earnings dynamics because of its U.S. footprint and its ongoing remediation work tied to past anti-money-laundering issues. In Q1 2026, TD reported net income of $4 billion, up 45% year over year, with total revenue climbing 18% to $16.6 billion. The bank took a final $200 million restructuring charge in the quarter as it winds down certain businesses and reduces its real estate footprint. That cleanup move should improve the earnings run rate going forward. Provisions for credit losses were $1 billion, down from $1.2 billion in the same quarter last year.

Valuation still reflects the ongoing regulatory overhang, with forward P/E at 11.6 times — a meaningful discount to TD’s banking peers. The dividend yield of 3.2% is the highest of the three stocks here.

NA

National Bank of Canada (TSX: NA) often plays the role of quiet overachiever, which is exactly what it performed in Q1 2026. It beat EPS estimates by 9%, posting $3.25 against a $2.98 forecast — the biggest earnings surprise of any Big Six bank this quarter. Revenue reached $3.89 billion against a $3.7 billion estimate. The stock jumped 6.64% on the day, closing near its 52-week high. The CWB integration is ahead of target, and the bank raised its full-year 2026 ROE guidance to 16%, with a target of over 17% for 2027. It trades at 18.9 times earnings with a 2.6% yield.

Bottom line

The market’s cautious response to these beats across the sector suggests investors are still not fully convinced. Q1 was a surprise. And that’s historically when the opportunity is best: after the first quarter, before the second one confirms the trend. Here’s how your income could shake out with a $7,000 investment in each bank.

COMPANYRECENT PRICENUMBER OF SHARES YOU COULD BUY WITH $7,000ANNUAL DIVIDENDTOTAL ANNUAL PAYOUT ON A $7,000 INVESTMENTPAYOUT FREQUENCY
TD$133.7352$4.32$224.64Quarterly
NA$190.7236$4.96$178.56Quarterly
RY$227.3730$6.56$196.80Quarterly

When Q2 lands, you want to already be holding the names that just proved they can turn analyst skepticism into a 6% to 9% earnings beat. The setup for that is already in place.

Fool contributor Amy Legate-Wolfe 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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