2 of the Best Bank Stocks Investors Can Buy Today

Key Points

• Canadian banks are highly regulated, giving the country's banks a different foundation from less regulated U.S. banks.

• Toronto-Dominion Bank has an attractive 3.9% yield, is improving its business, and has proven its resilience.

• Bank of Nova Scotia has a huge 4.9% yield and is refocusing around growth, including a renewed focus on the U.S. market.

• 10 stocks we like better than Toronto-Dominion Bank ›

The average large U.S. bank stock has a dividend yield of 2.3%. You can do way better than that if you buy Canadian banking giants Toronto-Dominion Bank (NYSE: TD) or Bank of Nova Scotia (NYSE: BNS), which have yields of 3.9% and 4.9%, respectively.

But higher dividend yields are only the start of the story. Here's why TD Bank and Scotiabank, as the banks are more commonly known, are two of the best bank stocks you can buy today.

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Why buy Canadian bank stocks?

The first important feature here is that both TD Bank and Scotiabank hail from Canada. Canadian banking regulations are far tighter than U.S. banking regulations. That results in two attractive features.

Image source: Getty Images.

First, large Canadian banks like TD and Scotiabank have basically been granted entrenched industry positions by regulators in that country. Thus, the home market for these two banks is something of an oligopoly. That's not quite as nice as the monopoly that utilities benefit from, but having a small number of large companies dominating an industry can still be pretty attractive for investors. Utilities get their monopolies in exchange for having the government regulate the rates they charge customers for various services. Canadian banks are more regulated than U.S. banks, though.

The second reason to like the country's banks is that heavy regulation has generally led to a conservative ethos throughout the large Canadian banks. Proof of this conservatism can be seen in the performance of TD Bank's and Scotiabank's dividends. Neither was forced to cut their dividend during the deep recession between 2007 and 2009 that forced U.S. banks like Citibank (NYSE: C) and Bank of America (NYSE: BAC) to do so (and to take government bailouts). And both TD Bank and Scotiabank have paid dividends consistently for more than 100 years. These are clearly reliable businesses, and that is, in part, thanks to Canadian regulations.

All in, if you are a dividend investor looking for reliable dividend stocks in the finance sector, Toronto-Dominion Bank and Bank of Nova Scotia are good places to start. But there's more to like with both.

TD Bank messes up big time

Toronto-Dominion Bank's core business is its Canadian operation, while its growth engine is its U.S. division. That turned into a big problem a few years ago when TD Bank's U.S. bank division was used to launder money. That led to a large fine, a need to increase its internal controls, and the U.S. division being put under an asset cap. Essentially, until TD Bank gets back in regulators' good graces, growth in the U.S. is off the table. That is bad news, with TD Bank likely to grow more slowly than it has historically for a little bit of time.

However, the bank isn't going away anytime soon. And the changes being made will position the U.S. business for better performance in the future. Meanwhile, the rest of the bank is largely unaffected. While the stock has largely recovered from the hit it took after the scandal erupted, it is still attractively priced relative to U.S. banks when you consider dividend yield.

The key, however, is that the TD Bank is still under an asset cap. When that gets lifted, TD Bank's growth is likely to kick into a higher gear. You can still get in before that happens if you buy today.

Bank of Nova Scotia changes plans

While TD Bank focused on the U.S. market for growth, Scotiabank attempted to differentiate itself by focusing on Central and South America. That didn't work out as hoped, as those regions are less stable financially and politically. So, to the bank's credit, it decided to shift gears. Now Scotiabank's goal is to become the preeminent bank serving customers from Mexico to Canada, meaning that it is increasing its exposure to the U.S. market.

It has already taken a nearly 15% stake in KeyCorp (NYSE: KEY), a large U.S. bank. Along with this shift, Scotiabank has also been getting out of less desirable markets in South America. Both moves should help improve the business profile of the bank over the long term. And yet the yield remains well above the norm in the bank sector.

Scotiabank is probably the more aggressive investment here. But a big sign of support for the transition came in mid-2025, when the board of directors increased the dividend. It held the payment static in 2024 as the overhaul got underway. The hike is a clear statement that Scotiabank's plans are proceeding well. If you get in on this revamp, you can collect a huge yield while you wait for the market to catch up to the progress being made.

Don't just buy what you know

You know the names Citibank and Bank of America, but that doesn't make them worth buying. For example, Citigroup's stock is up 70% over the past 12 months, and its price-to-sales, price-to-earnings, and price-to-book value ratios are all above their five-year averages. Meanwhile, the dividend and stock price both remain below where they were prior to the 2007-09 recession. And the yield is just average for a bank, at 2.3%. That's not a compelling investment story.

TD Bank and Bank of Nova Scotia both have higher yields. Their basic foundation, their Canadian operations, are very strong. And while they have each benefited from price gains of late, suggesting they aren't as cheap as they once were, they both have lower forward-looking P/E ratios than Citigroup (or Bank of America), hinting that investors may be underestimating the growth potential in each company's business overhaul. That sounds like a way more compelling investment opportunity.

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Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has positions in Bank Of Nova Scotia and Toronto-Dominion Bank. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.