Canadian banks have always been solid buys. They simply have an oligopoly not seen in the rest of North America. Yet when it comes to choosing between some of the oldest bank stocks, it can still be a hard choice.

Bank of Montreal (TSX:BMO) and Royal Bank of Canada (TSX:RY) on the TSX are both powerhouse institutions in Canadian banking. However, as an investor looking for stability, solid dividends, and future growth potential, you may wonder which is the better buy right now. Both BMO and RY offer compelling opportunities. But let's break down their recent earnings, dividend history, management strength, and overall future outlook to help clarify your decision.

Onto earnings

Royal Bank stock has shown impressive resilience and growth in its recent earnings. For its most recent quarter (Q3 2024), RY reported $15.9 billion in net income, a year-over-year increase of 16.2%. This growth is backed by solid revenue of $56.5 billion, an increase of 13% from last year.

RY's profitability, with a 28.7% profit margin and return on equity (ROE) of 13.7%, highlights its efficient management and ability to generate strong returns for shareholders. The bank is well-diversified, with a strong presence in wealth management and capital markets. And this positions it well for continued growth.

On the other hand, BMO stock also delivered notable performance, though with slightly different results. BMO's Q3 2024 earnings showed a 19.3% increase in quarterly earnings year-over-year, thus bringing net income to $6.3 billion.

Although its revenue of $31.4 billion reflects a modest decline of 3.6% from the previous year, BMO's operating margin of 37.4% and ROE of 8.5% indicate a solid, though somewhat less efficient, operation compared to that of RY. BMO's recent expansion into the U.S. with its acquisition of Bank of the West adds to its growth potential but also brings integration challenges.

Dividend support

Dividend history is another key factor. Royal Bank stock has been a reliable dividend payer with a current forward annual dividend yield of 3.3%, supported by a payout ratio of just under 49%. This payout ratio allows for flexibility in maintaining and potentially increasing dividends in the future. BMO stock, while also consistent with dividends, offers a slightly higher yield of 4.8%. This could be attractive to income-focused investors. However, its payout ratio is higher at 69.5%, which may limit its ability to raise dividends during tough economic times.

In terms of financial stability, to support that dividend, Royal Bank stock has the advantage with a larger market cap of $246.2 billion compared to BMO's $94.7 billion. Its larger scale, greater liquidity, and diversification make it more robust during market fluctuations. BMO, while strong, has more exposure to potential risks in the U.S. market due to its expansion strategy. This adds growth potential but also introduces risks from U.S. market volatility and regulatory changes.

Future focus

Both banks have experienced short-term volatility, but each is pursuing different growth strategies. Looking ahead, both banks have promising futures, but RY seems to have a slight edge in terms of overall stability and future growth potential. Its focus on wealth management and capital markets, combined with its strong presence in Canada, provides a solid foundation for continued success. BMO's U.S. expansion could pay off in the long run, but it introduces more risk, making it a potentially more volatile investment in the near term.

So, while both BMO and RY are strong contenders, Royal Bank stock appears to be the better Canadian bank stock to buy right now. Its larger market cap, stronger earnings growth, and better profitability metrics make it a safer bet for investors seeking stability and future growth. That said, BMO's higher dividend yield and U.S. exposure could make it an appealing option for those willing to accept a bit more risk for potential reward. The choice, as always, is up to each individual investor.