In the world of Canadian financial stocks, Toronto-Dominion Bank (TSX:TD) and Manulife Financial (TSX:MFC) are top dividend payers. While both are blue-chip stocks, their market performance and future growth potential diverge. TD Bank has been stuck in a sideways range for over two years, while Manulife has surged following a breakout in late 2023. But which stock is the best buy right now? Let's compare these financial giants and see which might offer better investment opportunities for different types of investors.

Manulife's long-term recovery: A dividend-growth story

For years, Manulife was overshadowed by its 2008 global financial crisis woes, which caused a significant drop in its stock price. It took years for investors to warm up to Manulife stock again. It began increasing its dividend in 2014, but it wasn't until late 2023 that Manulife broke out of its long sideways trend, signalling renewed investor confidence and a positive outlook. Its stock price only recently returned to pre-crisis levels.

At around $45 per share at writing, Manulife trades at a price-to-earnings (P/E) ratio of about 12, which is relatively reasonable considering its growth prospects. Analysts predict a steady earnings growth rate of at least 7% annually over the next couple of years, providing a solid foundation for future stock appreciation.

Furthermore, with a dividend yield of nearly 3.6% and a solid 10-year dividend-growth rate of 10.9%, Manulife continues to reward investors. It is expected to raise its dividend again in February, which is in line with its historical schedule. Other than earnings growth, the key to Manulife's future growth lies in its dividend payout ratio, which stands at a sustainable 42%.

This gives investors confidence that the company can continue to boost its dividend in the coming years, with the potential to be roughly a 7% increase next year. In short, Manulife is on solid footing, offering a mix of steady income and capital appreciation potential for patient, long-term investors.

TD Bank: A value play with a steady yield

TD Bank has been trading sideways for over two years. With its strong market presence both in Canada and the United States, TD offers investors a solid foundation in the retail banking sector. However, the stock has struggled to regain momentum, and no one knows when the current stagnation will end. Despite this, TD's long-term outlook remains promising.

TD's current dividend yield of 5.2% is highly attractive, especially for income-focused investors. The bank boasts a solid track record of paying out healthy dividends, with a 10-year dividend-growth rate of 9%. While its earnings growth and dividend growth may be somewhat capped in the short to medium term — especially due to regulatory limitations in its U.S. operations — the bank's stability makes it a great option for value investors who are willing to wait for the potential upside.

TD's valuation is on the lower end compared to its big Canadian bank peers, making it an intriguing choice for those looking for a stock with a potential multi-year turnaround. As with Manulife, TD's sustainable payout ratio and consistent earnings growth ensure that the dividend will remain intact, providing ongoing returns while the stock waits for its next phase of growth.

Which stock should you choose?

So, which is the better stock to buy right now: TD or Manulife?

If you're an income-seeking investor who values a higher dividend yield and can tolerate short- to medium-term market stagnation, TD may be the better pick. With its solid dividend history and long-term stability, it offers a reliable income stream while waiting for a potential rebound.

If you're looking for growth momentum and a stock that appears to be poised for further appreciation, Manulife could be the ideal choice. The company has shown impressive recovery and continues to trade at a reasonable valuation, all while maintaining a healthy dividend growth trajectory.

Ultimately, the best choice depends on your investment style — whether you're after value and have patience with TD or growth and momentum with Manulife.