The Big 6 Reported Earnings: Here’s My Favourite Bank Stock to Buy Now

All six Canadian banks beat earnings estimates, but their stocks are now priced as if investors expect that to keep happening.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 31, 5:00 pm EDT

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Key Points

All six Big Six banks had strong quarters, yet the sector trades at its priciest valuation in years.
TD stands out for the biggest earnings beat, the strongest CET1 capital ratio, and improving U.S. results.
The dividend is covered but smaller than it looks after the rally, so new buyers should start small and add gradually.

Canada’s Big Six banks just pulled off the investing equivalent of six siblings bringing home excellent report cards at once. Every bank beat Bay Street’s third-quarter earnings estimate. Profit grew, capital remained sturdy, and the economy declined to provide the disaster investors had been preparing for.

That should make choosing a bank stock easy. Unfortunately, the share prices also grew. Canadian banks recently traded near 15 times forward earnings, their highest sector valuation since 2010 and well above the roughly 10.8 times decade average. A great quarter is considerably less useful when the price already reflects expectations of a future increase.

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How to compare

Adjusted earnings growth shows whether profit is improving after unusual items are removed. Return on equity (ROE) measures how efficiently each bank turns shareholder capital into earnings. Investors comparing Canadian bank stocks should then examine credit losses, capital strength, valuation, and whether the quarter relied too heavily on trading revenue. So, let’s take a look.

BANK	Q3 ADJUSTED EPS GROWTH	Q3 ADJUSTED ROE
BMO	22%	14%
BNS	21%	14.2%
CM	26%	16.8%
NA	26%	16.8%
RY	11%	18.1%
TD	26%	16%

Royal Bank produced the highest return, but its premium valuation leaves little room for a stumble. CIBC delivered broad growth, although its price-to-book ratio has expanded sharply. Scotiabank finally cleared its 14% return target, then the stock celebrated with a 7% earnings-day jump. BMO still faces U.S. integration work, while National Bank must digest Canadian Western Bank and pursue its Laurentian Bank portfolio deal.

TD edges the pack

Toronto-Dominion Bank (TSX: TD) operates Canadian and U.S. banking franchises alongside wealth management, insurance, and wholesale banking. Adjusted earnings reached $2.77 per share, up 26% and approximately $0.30 above consensus. That was the strongest earnings beat of the reporting season.

The quality was encouraging. Canadian banking produced record earnings, wholesale banking profit climbed 87%, and reported U.S. banking profit rose 41%. Adjusted U.S. profit increased a more repeatable 12% as loan and deposit margins improved. TD now plans to open 100 U.S. branches by the end of 2028, giving the previously troubled division a visible growth project.

TD’s 14.3% Common Equity Tier 1 (CET1) ratio was the strongest among the Big Six. That capital can support lending, buybacks, and the dividend while management funds its U.S. repair work.

Small dividend, but mighty

TD stock maintained its $1.12 quarterly dividend, equal to $4.48 annually. Near $165.87, the yield is approximately 2.7% at writing. The payout remains comfortably covered, but the share-price rally has turned a former high-yield bargain into a growth-and-income stock. Even so, here’s what $10,000 could bring in at writing.

COMPANY	RECENT PRICE	NUMBER OF SHARES	ANNUAL DIVIDEND	ANNUAL TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
TD	$165.87	60	$4.48	$268.80	Quarterly	$9,952.20

Risk remains

TD expects fiscal 2026 U.S. anti-money-laundering remediation and control spending of approximately US$550 million, up from US$500 million. Important work remains through 2027, and regulators, not management, decide when the U.S. asset cap disappears.

Valuation supplies the second warning. TD stock trades near 17 times adjusted earnings, compared with approximately 13 times one year ago. I would open a starter position rather than arrive with a major investment ready to go, then add only as U.S. remediation milestones and earnings confirm the thesis.

Foolish takeaway

None of the Big Six look cheap enough to purchase without digging a bit deeper. TD stock is still my favourite because it combined the quarter’s strongest beat with the group’s best capital ratio and improving U.S. profitability. Investors developing long-term dividend investing habits can begin gradually. If TD completes its compliance repair while expanding earnings, today’s premium could become more reasonable before the stock ever feels cheap again.