Canadian bank dividends are doing something investors actually like: rising again.
After a few years of rate stress, credit worries, housing anxiety, and enough economic uncertainty to make everyone emotionally attached to their savings account, dividend increases feel like a small victory. Not fireworks, more like finding forgotten money in a winter coat. Still a major bonus.
Bank stocks sit close to the Canadian economy. When consumers borrow, businesses expand, markets cooperate, and credit losses stay manageable, banks can grow earnings and dividends. When borrowers struggle, banks build reserves, earnings wobble, and investors get twitchy.
The Bank of Canada held its policy rate at 2.25% in June 2026, while pointing to weaker global growth pressures, elevated trade uncertainty, and volatile bond yields. That gives bank investors a tricky setup. Rates are no longer climbing aggressively, but the economy is not exactly skipping through a meadow either.
So if the choice is Toronto-Dominion Bank (TSX: TD) or Bank of Montreal (TSX: BMO), which dividend stock would I rather own through 2026?
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TD
So let’s consider both, shall we? TD still has plenty going for it. It remains one of Canada’s largest banks, with strong Canadian banking, wealth, insurance, wholesale banking, and U.S. operations. The bank also delivered a solid second quarter. Adjusted diluted earnings per share (EPS) came in at $2.38, up from $1.97 a year earlier, while its CET1 capital ratio stood at 14.3%.
That capital ratio is the number TD stock bulls should like. It gives the bank flexibility while it continues investing in its U.S. control and compliance improvements. TD stock also raised its common dividend to $1.12 per share for the July 2026 payment, and with a recent yield at 2.6% while trading at 19.7 times earnings.
The problem is not the dividend, but the overhang. TD’s U.S. anti-money-laundering settlement came with penalties and an asset cap on its U.S. banking subsidiaries, and the bank’s latest results still referenced higher governance and control investments tied to U.S. BSA/AML remediation. That doesn’t make TD stock uninvestable. It just means the story still comes with a little regulatory baggage. Very chic, if your portfolio enjoys paperwork.
BMO
So what about BMO stock? It actually looks cleaner for a dividend investor right now. In the second quarter of 2026, BMO reported adjusted EPS of $3.67, up 40% from the year before. Provision for credit losses fell to $739 million from $1.05 billion, while adjusted return on equity (ROE) improved to 13.5%.
That is the comparison point I care about. BMO is showing stronger earnings momentum, better credit trends, and improving profitability at the same time. Banks need to earn more, protect capital, and pay shareholders to stay on top. BMO stock also raised its quarterly common dividend to $1.71 per share, up from $1.67 in the prior quarter and $1.63 a year earlier, and is now trading at about a 2.7% yield, so slightly above TD stock.
BMO has its own risks, though. Its U.S. business can face pressure if the economy slows, credit losses rise, or integration and divestiture moves distract management. Its CET1 ratio of 13% remains strong, but it sits below TD’s 14.3%, so TD still wins on capital cushion.
Foolish takeaway
That’s why I would not sell TD stock in a panic. Long-term investors who already own TD can reasonably hold it, especially if they believe the U.S. remediation story will improve over time. TD stock may offer more upside if confidence returns.
Yet for fresh dividend money, BMO stock looks like the better pick through 2026. It has the higher current yield, stronger recent earnings growth, a fresh dividend increase, and fewer headline distractions.
Dividend investors don’t need drama. They need cash flow, discipline, and a bank that can keep raising payouts while the economy figures itself out. Right now, BMO stock checks more of those boxes.
