Canadian bank stocks are some of the best long-term options for investors. There are plenty of reasons for that view, including the dividend income and long-term growth prospects that they can offer.
That being said, the decision on which of the big bank stocks to invest in needs a little more thought than choosing the biggest name or the highest yield.
Here’s a look at two Canadian bank stocks I will continue to own and buy more of, and one that I will skip investing in.
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Scotiabank: Buy for Higher income and improving profitability
The first of the Canadian bank stocks that I would continue to buy is Bank of Nova Scotia (TSX: BNS). Scotiabank offers two key advantages over its big bank peers that appeal to me.
First, it offers the highest dividend yield of the big banks. I’m a big fan of income stocks, and Scotiabank’s 3.5% yield is hard to ignore. Even better, that dividend comes with nearly two centuries of uninterrupted dividend payments.
To put that into context, a $10,000 investment in Scotiabank will generate nearly $350 in annual income. That can be reinvested for a few more shares or added to any income stream.
That income advantage is attractive, but the other noteworthy point is Scotiabank’s business.
In the most recent quarter, Scotiabank reported adjusted diluted earnings of $2.28 per share. That’s a notable increase over the $1.88 per share reported in the same period last year.
That earnings improvement strengthens Scotiabank’s income appeal. Earnings growth supports future dividend increases and gives investors a reason to keep holding.
TD: A buy for growing U.S. exposure
The second bank that I would consider buying more of is Toronto-Dominion Bank (TSX: TD). TD is the second largest of the big banks, and offers investors exposure to a large domestic network in Canada as well as an extensive network in the U.S.
In fact, TD has more branches in the U.S. than in Canada. That network stretches along the east coast from Maine to Florida. TD’s growing presence in that market gives the bank access to millions of customers and billions in loans.
In the most recent quarter, TD reported adjusted diluted earnings of $2.77 per share. That represents a 26% increase over the same period last year.
Turning to income, TD has paid dividends without fail since 1857. That’s an incredible amount of time, spanning booms, recessions, wars and market turbulence.
Today TD’s quarterly dividend carries a yield of 2.6%. That’s not the highest yield on the market, but that lower yield comes with plenty of long-term growth potential.
Royal Bank: Skipping for now
Rounding out the trio of Canadian bank stocks is Royal Bank of Canada (TSX: RY). Royal is the largest of the big banks and continues to deliver the results investors have come to expect from it.
In the most recent quarter, adjusted diluted earnings rose 11% year over year to $4.28 per share. Those results make it hard to argue that Royal Bank lacks growth. In fact, that consistency is a valid reason to own the stock.
That being said, this is one bank stock I’m skipping. Royal is a phenomenal business. It just doesn’t excite me the way that Scotiabank’s higher income and TD’s growth-focused U.S. banking exposure do.
And turning to income, Royal’s yield of 2.5% is the lowest of the trio. For income-focused investors, that could be an important factor.
For me, Royal’s consistency isn’t enough to make it my next bank purchase. By comparison, TD’s similarly low yield comes with U.S. banking exposure that I find more appealing.
Which Canadian bank stocks would I buy?
Scotiabank is my choice for investors placing greater emphasis on current dividend income. TD appeals to me for its Canadian and U.S. banking businesses.
Either is a great option for the longer term. Royal Bank remains a solid performer, but at least for me, Scotiabank and TD are a better match for what I’d want from my next buy.
