Toronto-Dominion Bank (TD) vs Royal Bank of Canada (RY)

Toronto-Dominion Bank (TD) vs Royal Bank of Canada (RY)

For a very long time I’ve known that both Toronto-Dominion Bank and Royal Bank of Canada are fantastic TSE-listed stocks to own. There are TD branches all around the area that I live, not so many RBCs. However, RBC is actually the largest Canadian company, with a market cap of $104.80 billion. TD does not trail too far behind in this respect though, with a market cap of $94.76 billion.

After purchasing shares in Canadian Western Bank (CWB), I wanted to venture forward and check out a couple more Canadian banks in a little bit more detail than was present in my January 2016 Stock Watch list, which included all Five Big Canadian banks, and CWB (the 7th largest) among other great companies that have kept my eye.

I figured the quickest way to quickly glance at which company would fit my portfolio best would be to pit them against each other in my favourite stock metrics, just as I did when pitting BNS against CWB. I’ll be pitting many companies against each other in the weeks and months to come as there are a lot of great companies which share sectors. We need to filter the great ones out.

Toronto-Dominion Bank vs Royal Bank of Canada

Toronto-Dominion Bank Royal Bank of Canada
Price $51.05 $70.07
Trailing P/E 12.1 10.4
Forward P/E 10.6 10.2
Dividend Yield 4.00% 4.51%
Payout Ratio 47.36% 45.64%
5-Year Yield Avg 3.49% 3.91%
5-Year Yield Growth Rate 10.39% 9.02%
10-Year Yield Growth Rate 9.33% 10.12%
10-Year YOC 9.76% 11.83%
1-Year Return -2.93% -9.56%
5-Year Return 37.60% 34.7%
Profit Margin 27.41% 28.39%
Operating Margin 32.87% 35.74%
12-Month Price Target
Mean $59.50 $83.00
High $66.00 $95.00
Low $51.00 $71.00
Target vs Current 16.60% 18.10%
Forecasted Growth
2016 1.70% 3.10%
2017 7.30% 9.90%
Relative Valuation
Trailing P/E 12.1 10.4
5-Yr Average 13.2 13.7
Rel. to 5-Yr Avg. 8% Discount 24% Discount
Forward P/E 10.6 10.2
5-Yr Average 11.3 11.6
Rel. to 5-Yr Avg. 6% Discount 12% Discount

From this quick glance we can very quickly deduce that RY has actually done much better than TD in most areas, though TD appears to be slightly better at preserving your wealth, as seen by the 1-year return.

Toronto-Dominion Bank

Toronto-Dominion bank is the second largest Canadian bank (by market cap), and the 6th largest in North America. It ranks 1st out of the Canadian banks in total assets, at $1, 104 billion.

TD's overview
Source: TD 2015/Q4 Investor Presentation

Earnings Diversification

TD separates their earnings into four separate sections: Canadian Retail, U.S. Retail, Wholesale Banking, and TD Ameritrade. The diversification of these earnings is depicted below through this visual.TD has a smaller exposure to the Canadian market than does RY, and a larger exposure to the U.S., which is a great thing as interest rates rise throughout 2016 and beyond.

TD Diversification
Source: Toronto-Dominion Bank’s 2015/Q4 Investor Presentation
3. TD had a reported investment in TD Ameritrade of 41.54% as at October 31, 2015 (October 31, 2014 – 40.97%).

Lending Portfolio

Unfortunately, TD’s investor relations do not provide pie charts for their lending portfolio like does RY’s. It would have been very helpful, but we can look at the numbers just the same. It’s also a little discombobulating to look at it in terms of both $CAD and $US currencies with a total in $CAD afterwards.

TD Lending Portfolio
Source: TD 2015/Q4 Investor Presentation

Dividend Growth

While TD may have a 12% compound annualized growth rate of their dividend dating back from 1995 to 2015, the dividend growth was suspended during 2009 – 2010. TD has a 10-year compound annual dividend growth rate of 9.33%.

TD Dividend Growth
Source: TD 2015/Q4 Investor Presentation

Royal Bank of Canada

Royal Bank of Canada is the largest bank in Canada (by market cap) and one of the 15 largest global banks by market cap. It operates in 39 countries, and their ~78, 000 employees serve their 17 million+ clients.

RY is well diversified as any other solid bank, both by business and geography as shown by the visual below.

Earnings Diversification

Royal Bank of Canada (RY) Diversification
Source: Royal bank of Canada Q4/2015 Investor Presentation

Lending Portfolio

RY’s loan book is very heavy in Canadian residential mortgages, with 48% of their total loan book dedicated to this type of loan, and 85% of their geography diversification coming from Canada. Depending on how and when the housing bubble bursts throughout Vancouver and Toronto, it could spell some trouble for RY in this respect. I’d like to see a little less dependency on on Canadian mortgages for this, but that’s how banks work.

Source: Royal bank of Canada Q4/2015 Investor Presentation
Source: Royal bank of Canada Q4/2015 Investor Presentation

Dividend Growth

RBC has a 10-year compound annual growth rate of roughly 10% as shown in the comparison above.

RBC Dividend Growth
Source: Royal bank of Canada Q4/2015 Investor Presentation

There’s a wealth of great information presented very simply in RY’s Q4/2015 Investor Presentation, which goes into many specifics numbers and details through all of their diversification and business segments. I invite you to read it if you’d like more information on RY and their operations. It also includes notes on Canada’s GDP, economy, and housing markets.


Both Toronto-Dominion Bank and Royal Bank of Canada are the largest Canadian banks, and make for great investments. Their share prices have been pushed down for the past year due to the state of the economy; from the oil glut to the dangerous housing bubble.

Personally, RBC currently fits my desired metrics more closely than does TD. As you can see, it surpasses TD in a large variety of fields: trailing and forward P/E, current yield, payout ratio, 10-year dividend growth rates, 10-year project yield on costs. RBC also is predicting larger revenue growth than TD for 2016 and 2017. It is also trading at a larger discount relative to it’s 5-year average trailing and forward P/E. The biggest argument for TD in my situation is the exposure to the U.S. with their oncoming rising rates, however RBC has recently increased their mortgage rates, despite the Bank of Canada having reduced rates in 2015.

The winner for this round of TD vs RY is a definitive: Royal Bank of Canada.

14 Replies to “Toronto-Dominion Bank (TD) vs Royal Bank of Canada (RY)”

    1. Hey R2R,

      I’m glad you’re enjoying this series. I quite enjoy writing them up and figuring out which of the two companies I should invest in. Always happy to bring value to the blog.

      Best regards,

    1. Hi DFS,

      Thanks for stopping by! There’s quite a bit of value to be had on the Canadian market with a great deal of companies falling more than they ought to; panicked investors fleeing the market and all.. The Canadian banks are a good long-term hold and many foreign investors pick up shares in them.

      Haha, I guess I don’t sound like much of a beginner now in some areas. Still a lot to learn though. Once I’ve moved on then I’ll be teaching the other dividend beginners!


  1. I like how you did your analysis (love to see some colors too!). I like both, but I also tend to prefer RBC. TD is too close to the “classic” bank model. I like seeing RY investment in wealth management and capital market. Those will be great sources of revenues in the future.



    1. Hey DivGuy!

      Thanks for the compliment. it’s always nice to see a splash of colour among walls of text and graphs. They are both great companies, I like them both too. They both have their pros and cons.

      RY indeed has a decent amount of diversification for it’s revenue which should keep it safe in turbulent times. It’s not the biggest Canadian bank for nothing!

      Best regards,

  2. Great comparison! Always love looking at Canadian Banks. They have such a great history of paying out divis. I’m definitely looking to start a position in RY in the near future. Currently have BNS and TD. Thank you for the post!

    1. Hi JT,

      Thanks for your kind words. Canadian Banks are on fire these days and I still want to add more and more. I just picked up shares in RY this past week, other than that I own BNS, and CWB. Would like to add TD as well at some point.


  3. Great analysis of two Canadian banks I currently hold. I still like both long term but it’s interesting to see these side by side comparisons. I just added to my BNS recently. Curious to see that bank go against others.

    1. Hey DH,

      Thanks for stopping by. They are both great long-term holds but looking at them side-by-side makes it easier to make short-term decisions. I’d like to add to my BNS position before the next ex-dividend date. I have compared BNS to CWB in a previous post if you’re interested.


  4. Nice site and good analysis – love the graphics! Both banks seem like good long-term bets and have gotten beaten up badly over the last 3 years, so potentially a good time to buy at a discount.

    1. Hey IH,

      Canadian banks are indeed trading at attractive valuations, especially for us DGInvestors. Great time to pick them up. We’ll see what happens this Wednesday concerning the BoC rates and what effect it will have on the bank share prices. TD and RY are both great stocks.

      Best regards,

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