We’ve long recommended that all Canadian investors own two or more of the big five Canadian bank stocks. That’s mainly because of their importance to Canada’s economy.

Like most stocks, the top five banks slumped deeply during the 2007-2009 market downturn and financial crisis. But since the market turnaround of March 2009, several of the top five have recovered and gone on (at least briefly) to all-time highs. Few other stock groups have done as well.

(In a recent Successful Investor Hotline, we updated our buy/sell/hold advice on Toronto-Dominion Bank, which is the second biggest of the big-five Canadian bank stocks, after Royal Bank. Read on for further details.)

Dividend hikes underway for the big-five Canadian bank stocks

The big five Canadian bank stocks have long histories of annual dividend increases. However, rising loan losses and writedowns of illiquid securities stemming from the financial crisis prompted them to conserve cash in the last couple of years, instead of raising their dividends.

As well, banking regulators around the world have proposed new regulations aimed at avoiding another crisis. The new rules will force banks to increase their capital reserves, which would help them better absorb future loan losses.

However, Canada’s banks are in much better shape than banks in other countries, so they should have no trouble adapting to the new rules. As a result, two banks of the big-five banks have already started raising their dividends, and the others are likely to follow.

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TD is the first of the big-five bank stocks to resume dividend increases

Toronto Dominion Bank, symbol TD on Toronto, is the first of Canada’s big five banks to raise its dividend. The new quarterly dividend of $0.66 a share, up 8.2% from $0.61, yields 3.1% on an annualized basis.

In the three months ended January 31, 2011, the bank’s earnings rose 11.0%, to $1.6 billion from $1.4 billion a year earlier. Earnings per share rose 8.8%, to $1.74 from $1.60, on more shares outstanding. These figures exclude several one-time items, such as gains and losses on securities the bank holds, and costs to integrate recent acquisitions in the U.S.

More of the bank’s customers are repaying their loans on time. As a result, TD’s loan-loss provisions fell 19.9%, to $414 million from $517 million. That was the main reason for the higher earnings. Revenue rose 8.4% in the quarter, to $5.5 billion from $5.0 billion.

Chrysler Financial purchase adds to this bank stock’s potential—but it’s not without risk

TD recently agreed to buy privately held Chrysler Financial, which provides car loans and leases to buyers of Chrysler vehicles in Canada and the U.S. The purchase will make TD one of the top five car-loan providers in North America.

The bank will pay $6.3 billion U.S. for Chrysler Financial when the deal closes in April 2011. This purchase will let TD profit from rising car demand. However, the automobile industry is highly cyclical, and Chrysler itself only recently emerged from bankruptcy protection. That adds risk to this purchase.

You can get our full analysis, including our latest buy/sell/hold advice, on TD and the other big-five banks when you subscribe to The Successful Investor. Best of all, you can get one month free when you subscribe today. Click here to learn how.