TFSA Dividend Investors: Should Bank of Montreal or Bank of Nova Scotia Be on Your Buy List?

Canadians are searching for top stocks to add to their TFSA portfolios, and the big banks are often touted as attractive picks.

Let’s take a look at Bank of Montreal (TSX:BMO)(NYSE:BMO) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) to see if they deserve a spot in a dividend-focused fund.

Bank of Montreal

Bank of Montreal reported solid fiscal Q1 2018 results. The company earned adjusted net income of $1.4 billion, with strong performances coming from the personal and commercial banking operations in both Canada and the United States.

The bank has a large U.S. presence, primarily located in the Midwest states. A positive economic environment south of the border should provide a nice boost to revenue in the coming years, and investors can benefit when the U.S. dollar strengthens against the loonie.

Bank of Montreal pays a quarterly dividend of $0.93 per share for an annualized yield of 3.8%. The company has given shareholders a piece of the profits every year since 1829, so investors should feel comfortable with the security of the payouts.

The stock currently trades at 13.8 times trailing earnings.

Bank of Nova Scotia

Bank of Nova Scotia has invested heavily in building a strong international business, with a specific focus on Mexico, Peru, Chile, and Colombia. These countries have a combined consumer base of more than 200 million people and form the core of the Pacific Alliance, which is a trade bloc set up to promote the free movement of goods and capital among the member states.

Bank of Nova Scotia reported impressive fiscal Q1 2018 numbers, with strong performances from both the Canadian and the international operations. Net income came in at $2.34 billion, compared to $2.01 billion in the same period last year.

The company recently announced a string of deals, including acquisitions in Colombia, Chile and Canada. These should drive revenue and earnings growth and provide additional support for dividend increases in the coming years.

Management just raised the quarterly payout by $0.03 to $0.82 per share. That’s good for an annualized yield of 4%.

Bank of Nova Scotia gets about 30% of its earnings from the international operations, so investors have a great opportunity to benefit from emerging-market growth through a rock-solid Canadian company.

At the time of writing, the stock trades for 12 times trailing earnings, making it the cheapest of the four largest Canadian banks on a price-to-earnings basis.

Is one more attractive?

Both companies should continue to be strong buy-and-hold picks for a dividend-focused TFSA portfolio. An equal investment in the two stocks would provide good exposure to Canada, the U.S., and Latin America.

If you only buy one, I would probably make Bank of Nova Scotia the first choice. The long-term potential of the international businesses is attractive, and the stock might be undervalued right now.

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Fool contributor Andrew Walker has no position in any stock mentioned.