Five Key Takeaways from TD Bank’s Full Year Earnings Release

The shares dipped but this Fool has no issue with TD’s stellar quarter.

| More on:

Bank reporting season has wrapped up yet again, with Canada’s big five reporting (as usual) solid full year financial results on the back of a booming housing market and growing demand for credit. However, Canada’s second largest lender Toronto Dominion Bank (TSX:TD)(NYSE:TD) saw its shares slump last Friday after missing analysts’ fourth quarter expectations. This was despite the bank reporting a strong full year 2013 result and announcing a surprise stock-dividend and dividend increase.

Here were the keys to TD’s report:

1. Solid annual financial performance

With Canada’s housing market soaring to new heights and growing consumer demand for credit, TD Bank reported solid 2013 results. Full year revenue shot up almost 7% year-over-year to $27 billion and net income by 3% to almost $6.9 billion.

Earnings were lifted by a strong performance from its Canadian Personal and Commercial (P+C) Banking business. This segment was able to profit from growing domestic demand for credit, in particular mortgages and consumer credit. All of which drove loan and deposit volumes higher and when coupled with lower credit losses saw the segment’s adjusted net earnings pop by 11%.

Wealth Management was also a strong performer, posting a tidy 15% increase in earnings on the back of higher fee revenue, increased trading activity and the acquisition of New York money manager Epoch.

As such retail earnings as a whole – which include personal and commercial banking, wealth management and insurance in both Canada and the U.S. – jumped an impressive 19%, highlighting the strength of the bank’s core operations. All of which only continues to confirm the profitability of Toronto Dominion.

2. Key risk indicators are healthy

Not only did TD post a solid financial performance, but its capital adequacy and credit quality remain strong. A key measure of capital adequacy – its Basel III tier 1 common equity capital ratio – has appreciated 20 basis points to 9% since being introduced at the start of 2013. This is well above the minimum ratio mandated by the Superintendent of Financial Institutions and superior to many smaller banks.

Credit quality continues to remain high, with impaired loans as a percentage of the total loan portfolio dropping 20 basis points year-over-year to 0.50%. Provisions also tapered downwards, to be 50 basis points lower year-over-year at a particularly acceptable 0.38%.

Indicating that not only is Toronto Dominion’s core business strong, but that its capital adequacy and credit quality remain high, reducing risk for investors.

3. Continues to deliver solid share holder value

Despite missing fourth quarter earnings estimates TD’s overall business performance remains strong. For the full year it reported a healthy return-on-equity of 15% and return-on-assets of 2.5%.

This illustrates that the bank is continually unlocking considerable value from its existing assets and delivering solid returns for shareholders. These performance ratios were higher than the industry averages of 11% and 0.8% respectively.

4. Another dividend hike boosts its yield

In a surprise move TD announced that it would increase its annual dividend by 1 cent per share and pay a stock dividend with a 2-for-1 stock split effect in January 2014. This increase modestly boosts TD’s dividend yield to a healthy 3.8%.

But more importantly, TD still has a particularly conservative dividend payout ratio of 47%. Not only indicating that the dividend payment is sustainable but that there is still considerable room for future dividend growth.

5. Still appears good-value for income hungry investors

Even after this stellar full year performance coupled with the dividend increase Toronto Dominion appears attractively valued. Trading with a price-to-book ratio of 1.9 and a price-to-earnings ratio of 14 coupled with a dividend yield nudging 4% I believe it’s an appealing investment for income hungry investors.

Foolish final thoughts

Clearly the market was disappointed with TD missing fourth quarter estimates. But it appears that many market pundits ‘threw the baby out with the bath water’, marking down its shares despite the bank delivering a solid full year result. This was further sweetened with it rewarding investors with yet again another dividend hike.

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 Matt Smith does not own shares in any of the companies mentioned.  The Motley Fool does not own shares in any of the companies mentioned.

More on Investing


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

consider the options
Tech Stocks

Better Buy (2024 Edition): Shopify or Nvidia Stock?

Shopify (TSX:SHOP) isn't the only red-hot tech stock in town that could add to recent gains.

Read more »

Bad apple with good apples

5 Stocks You Can Confidently Invest $500 in Right Now

These stocks could significantly grow your investment over the next decade.

Read more »

Illustration of bull and bear
Tech Stocks

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

Given their high growth prospects and cheaper valuation, these three growth stocks would be an excellent buy as the market…

Read more »

Golden crown on a red velvet background
Energy Stocks

Enbridge Stock: This Dividend Aristocrat Could Gain in 2024

Enbridge (TSX:ENB) stock is looking like a great buy as management expects it to grow in 2024.

Read more »