The Top Dividend Stock? Royal Bank of Canada vs. Toronto-Dominion Bank

Dividend StockIt hasn’t been a great time to own dividend stocks like the Canadian banks. Over the past year, shares of Toronto-Dominion Bank (TSE:TD, NYSE:TD) and Royal Bank of Canada (TSE:RY, NYSE:RY) have flatlined on concerns of a weakening economy thanks to plunging oil prices and the sinking Canadian dollar. Toronto-Dominion (TD) and Royal Bank shares are down 2.64% and 9.37%, respectively.

But that has created a nice opportunity for dividend investors to pick up shares of either bank. If you have limited funds, choosing between these two might be difficult. Let’s compare these two banking giants and see how they stack up on a variety of metrics to see which may be the better bet for income investors.

Dividend Yield

Royal Bank yields 4.41%, while TD yields 3.98%. So there’s no contest there, as RY stock yields almost half a percentage more than TD stock.

Winner: RY


Dividend History

Dividend investors want to know for certain that they are going to keep receiving those dividend checks. Banks are a good bet, as they are known for having a long history of paying out dividends. Royal Bank and TD have been rewarding shareholders since 1870 and 1857, respectively, so TD has been at it for a little while longer.

Winner: TD

Dividend Safety

Dividend payout ratio is a good measure to use to determine how safe a company’s dividend is. It provides an indication of how much money a company is returning to shareholders versus reinvesting profits back into the business. If a company’s payout ratio is more than 100%, it is returning more money to shareholders than it is earning and will probably be forced to cut its dividend. Fortunately, neither bank has that problem. Both Royal Bank and TD have payout ratios just below 50%.

Winner: Draw

Dividend Growth

Dividend investors want to see those dividends increasing at a rate that at least keeps up with inflation. Royal Bank’s dividend has an annual compound growth rate of 9.46% compared to 11.24% for TD stock’s dividend.

Winner: TD

Earnings Growth

Both banks must find a way to keep growing earnings if they’re going to keep fueling their dividends. Based on analyst expectations on earnings growth for the next five years, Royal Bank and TD’s growth rates are 10% and 12%, respectively.

Winner: TD


We also want to determine how cheap the stocks are by comparing their earnings to their share prices. Both banks are reasonably priced. Royal Bank and TD trade, respectively, at 11.17 and 8.10 times their forward earnings.

Winner: TD

And the Winner Is…

Both Toronto-Dominion Bank and Royal Bank of Canada are great picks for any dividend investor portfolio, but based on this side-by side-comparison, the TD stock wins on most measures. However, investors looking for yield consider taking a closer look at RY stock.