3 Reasons Why Toronto-Dominion Bank’s Shares Could Soar

Here are three of the primary reasons why you should buy shares of Toronto-Dominion Bank (TSX:TD)(NYSE:TD) today.

| More on:
The Motley Fool

Toronto-Dominion Bank (TSX:TD)(NYSE:TD), the second-largest bank in Canada in terms of total assets, has watched its stock underperform the overall market in 2015, falling about 2% as the TSX Composite Index has risen over 1%. However, I think it could widely outperform from this point forward. Let’s take a look at three of the primary reasons why this could happen and why you should be a buyer of the stock today.

1. Strong second-quarter growth to support a near-term rally

TD Bank released better-than-expected second-quarter earnings results on May 28, but its stock has responded by falling about 3% in the trading sessions since. Here’s a breakdown of 10 of the most notable statistics from the report compared with the year-ago period:

  1. Adjusted net income increased 4.6% to $2.17 billion
  2. Adjusted earnings per share increased 4.6% to $1.14, surpassing analysts’ expectations of $1.11
  3. Adjusted revenue increased 4.1% to $7.74 billion, surpassing analysts’ expectations of $7.48 billion
  4. Net interest income increased 4.3% to $4.58 billion
  5. Non-interest income increased 3.9% to $3.16 billion
  6. Total assets increased 13.5% to $1.03 trillion
  7. Total deposits increased 17.4% to $652.09 billion
  8. Total loans managed, net of loans securitized, increased 11.1% to $504.41 billion
  9. Adjusted efficiency ratio expanded 200 basis points to 54.8%
  10. Book value per share increased 13.9% to $30.90

2. The stock trades at inexpensive forward valuations

At today’s levels, TD Bank’s stock trades at just 11.9 times fiscal 2015’s estimated earnings per share of $4.55 and only 11.3 times fiscal 2016’s estimated earnings per share of $4.82, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 13.7 and the industry average multiple of 13.4.

I think TD Bank’s stock could consistently command a fair multiple of at least 13.5, which would place its shares upwards of $61 by the conclusion of fiscal 2015 and upwards of $65 by the conclusion of fiscal 2016, representing upside of more than 12% and 19%, respectively, from current levels.

3. A management team dedicated to maximizing shareholder value

TD Bank pays a quarterly dividend of $0.51 per share, or $2.04 per share annually, giving its stock a 3.75% yield at today’s levels. The company has also increased its dividend nine times in the last four years, making it one of the top dividend-growth plays in the financial sector today, and its consistent free cash flow generation could allow for another increase in the second half of this year. 

Is now the time to buy shares of TD Bank?

I think Toronto-Dominion Bank represents one of the best long-term investment opportunities in the market today. Its strong second-quarter earnings results could support a near-term rally, its stock trades at inexpensive forward valuations, and it has a 3.75% dividend yield with a long track record of increasing its payout. Foolish investors should strongly consider establishing positions right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »