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Is Toronto-Dominion Bank Really a Safe Dividend Pick?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has long been a no-brainer holding for many Canadian dividend investors, but economic headwinds and technology threats have some pundits wondering if the stock is still a safe bet.

Let’s take a look at the current situation to see if TD deserves to be in your portfolio.

Positioning for the future

The Canadian banks are undergoing a major transformation and TD is leading the way.

Earlier this year TD announced a restructuring plan that will ensure the bank remains competitive in a rapidly changing environment.

The company took a $228 million charge in Q2 for the first phase of the program. The initial stage focused on redesigning processes across the company in an effort to make the business more nimble.

Part of the ongoing strategy is to move more revenue generation out of the branch and make it easier for customers to conduct their banking activities via mobile devices or through their home computers. The bank expects non-branch sales to climb from the current level of 17% to as high as 30% by 2020.

In order to stay ahead of the technology curve and defend its territory against non-bank mobile payment competitors, TD is partnering with FinTech companies.

The company is also expanding its wealth management operations. TD recently unveiled a new web broker platform and plans to hire 500 advisors over the next two years.

The process is certainly far from complete.

Reports have come out in recent weeks that TD is laying off more staff and analysts expect another sizeable restructuring charge to be announced with the Q4 earnings.

Earnings growth

Despite the challenging environment, CEO Bharat Masrani believes TD can still meet its medium-term target of 7% earnings growth.

Risks

The oil rout and fears of a housing crash are keeping some bank investors up at night.

TD finished its fiscal third quarter with $241 billion in residential mortgages on the books. Insured mortgages represent 57% of the portfolio, and the loan-to-value ratio on the remaining loans is 59%.

The housing market would have to fall significantly for the bank to see any serious losses. Most analysts expect a gradual slowdown as opposed to a crash.

On the energy front, TD has less than 1% of its total loan book exposed to oil and gas companies.

Dividend strength

TD pays a quarterly dividend of $0.51 per share that yields about 3.8%. The company has a long history of increasing the payout, and that trend should continue as long as the company meets its growth objectives.

Should you buy?

The stock currently trades for a reasonable 10.4 times forward earnings, so new investors should feel comfortable starting a position. TD remains one of the best picks in the Canadian market and will continue to evolve with the market just as it has for more than 150 years.

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

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