Royal Bank vs. National Bank: Where Should You Park Your Investment Capital?

If we go by growth alone, it’s easy to identify the top contender in the Canadian banking sector, but a more holistic choice would require a more comprehensive analysis.

| More on:
Confused person shrugging

Source: Getty Images

The month of November, specifically, and the year in general, has been fantastic for the financial sector of the TSX. The financial index has risen significantly since the start of the year, and the momentum is still quite strong.

Ironically, the best growth-oriented bank stocks (historically) weren’t at the top of the list this year. That title goes to Canadian Imperial Bank of Commerce, which has risen by over 40% since the beginning of 2024.

However, the largest and the smallest of the Big Six Canadian bank stocks remain the best long-term growth prospects in the sector, and if you are planning on buying just one of them, identifying their individual strengths and limitations might be a great starting point.

The largest of the Big Six banks in Canada

Royal Bank of Canada (TSX:RY) is the largest bank and most valuable security in Canada and one of the largest financial institutes in North America. This magnitude, massive footprint, and enormous consumer base are some of the bank’s core strengths. It controls such a large segment of the local market that its influence can be significant.

Despite its size, the stock has maintained one of the best growth paces in the Canadian banking sectors in the last decade despite its size. It also offers financially healthy dividends at a decent yield and has a stellar dividend history. The current yield is about 3.2%.

Another considerable strength of the bank is its international footprint. About 37% of its revenue comes from outside Canada — 26% from the U.S. and 11% from its global business. It is in nine countries and is among the largest banking institutions in the English Caribbean. This level of foreign exposure can lead to promising opportunities.

As for performance, the bank rose by about 29% just this year. In the last decade, it returned 111% to its investors through price appreciation and over 210% via both growth and dividends.

The largest bank in Quebec

National Bank of Canada (TSX:NA) has deep roots in Quebec, and even today, when it has risen to become one of the six largest banks in the country, its presence is highly concentrated in the province. Last year, about 51% of its revenue came from Quebec alone.

The bank is growing its international footprint as well, but it’s nowhere near RBC right now, as only about 19% of its revenues came from outside Canada last year.

But it’s still an impressive number. Even more impressive is its growth pace and overall return potential. The stock rose 32% this year and 145% in the last 10 years. Its overall returns for the decade were over 270%. The current yield is 3.3%.

Foolish takeaway

The bull market phase of the two stocks is quite similar right now, but National Bank of Canada has a slight edge in the historical return patterns. If you are going by the last 10 year’s returns and by valuation, National Bank of Canada is a slightly better choice. If you want the safest of the two bets, Royal Bank is a better pick, but only by a little margin.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Bank Stocks

calculate and analyze stock
Bank Stocks

Is Canadian Imperial Bank of Commerce a Buy for its 4% Dividend Yield?

Besides its 4% annualized dividend yield, these top reasons make Canadian Imperial Bank stock really attractive for long-term investors right…

Read more »

ways to boost income
Bank Stocks

2 Undervalued Canadian Bank Stocks to Buy Now

These Big Six Banks offer growth potential and reliable dividend payments.

Read more »

Man holds Canadian dollars in differing amounts
Bank Stocks

Got $1,000? BNS Stock Can Turn it Into a Passive-Income Stream

Down more than 20% from all-time highs, Bank of Nova Scotia currently offers a tasty dividend yield of over 6%…

Read more »

dividend growth for passive income
Top TSX Stocks

1 Magnificent Canadian Stock Down 9 Percent to Buy and Hold Forever

There are some really great stocks on the market for any portfolio, but this one magnificent Canadian stock screams buy.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

Is BNS Stock a Buy, Sell, or Hold for 2025?

Bank of Nova Scotia (TSX:BNS) is one of Canada's big bank stocks, but should you buy, sell or hold BNS…

Read more »

A worker uses a double monitor computer screen in an office.
Bank Stocks

Is BNS Stock a Buy for its Dividend Yield?

Bank of Nova Scotia is up nearly 30% in the past year. Are more gains on the way?

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Bank Stocks

Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Read more »

how to save money
Bank Stocks

This 5.9% Dividend Stock Pays Cash Every Month

First National Financial (TSX:FN) has a 5.9% yielding dividend that is paid out monthly.

Read more »