Is RBC Stock or TD Bank a Better Buy Today?

Royal Bank of Canada (TSX:RY) and TD Bank (TSX:TD) is Canada’s largest financial institution. Bank stocks are off their highs for the year, and investors who missed the big rallies after the 2020 market crash are wondering if RY stock or TD stock is now oversold and a good buy. for a retirement portfolio.

Royal Bank

Royal Bank is the largest company on the TSX with a current market capitalization of $175 billion. The stock trades near $126 at the time of writing compared to around $140 in February.

Royal Bank has avoided the temptation to pursue a major acquisition in the US for the past two years and has instead focused on doing deals in the United Kingdom and Canada. The company has closed the $2.4 billion acquisition of Brewin Dolphin, a large wealth management company in the UK and Ireland. The deal makes Royal Bank a top-three player in the markets sector. At home, Royal Bank is working to close the $13.5 billion purchase of HSBC Canada. The deal will add nearly 130 branches and bring a rich client portfolio.

Royal Bank has generated solid fiscal second-quarter (Q2) 2023 results. Adjusted net income came in at $3.8 billion. That was down about 13% from the same period last year and was largely due to a higher provision for credit losses (PCL). The bank booked a PCL of $600 million in the quarter compared to a $342 million PCL reversal in fiscal Q1 2022. This is important for investors to note, as the PCL figure is only an amount the bank has allocated for potential loan loss that may not. actually happen.

Royal Bank ended fiscal Q2 2023 with a common equity tier-one (CET1) ratio of 13.7%, well above the 11.5% required by regulators in the coming months, but Royal’s CET1 ratio Bank will go under if the HSBC deal closes in early 2024.

At today’s share price, Royal Bank stock trades for about 12.5 times trailing 12-month earnings and provides a 4.25% dividend yield.

TD Bank

TD is another banking giant with a current market capitalization of around $149 billion. The stock trades around $82 per share at the time of writing. That’s off a 12-month low of nearly $76 but a far cry from the $93 the stock hit earlier this year and the $108 rally peak in the first half of 2022.

TD has built a large capital cushion to pay for a planned US$13.4 billion all-cash takeover of First Horizon, a US regional bank based in southeastern states. The deal would have added more than 400 branches and is set to make TD a top-6 retail bank in the American market. TD backed out of the intended acquisition, citing regulatory hurdles, and finished fiscal Q2 with a CET1 ratio of 15.3%.

The excess cash gives TD a significant safety net to weather a potential economic downturn. However, the company’s adjusted revenue growth will not hit the previous guidance of 7-10% due to the canceled deal.

TD did not raise the dividend when it announced fiscal Q2 2023 results. Investors, however, could see a payout bump or even a special dividend as a reward for their patience during the illness. that stock price decline in the last 18 months. TD can also use some of the excess cash to buy back stock.

On the growth side, TD is now looking to take a slow organic approach to building its presence in the southeastern US.

TD stock currently offers a 4.7% dividend yield and trades at nearly 10.4 times trailing 12-month earnings.

Is one better to choose?

TD and Royal Bank are good companies with a long track record of expanding profits and growing dividends. Buying these stocks on dips has historically proven to be a smart move in the long run, and both deserve to be on your radar for a retirement portfolio.

If you’re only going to buy one, I’d probably go with TD as the first choice right now. This is a contrarian pick, but the stock still appears oversold and offers better upside in the medium term recovery.