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

four people hold happy emoji masks
Tech Stocks

Here Are My Top 2 TSX Stocks to Buy Right Now

Boasting solid growth prospects, these two TSX stocks are my top picks for investors with a stronger stomach for market…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Building an RRSP Fortune: 4 Key Insights

The RRSP is not only a tax-saver but a wealth-builder for Canadian income earners.

Read more »

Sliced pumpkin pie
Dividend Stocks

Market Sell-Off: Why These 2 TSX Blue-Chip Stocks Are Too Attractive to Ignore Right Now

Investors worried about the sell-off due to trade tensions might want to secure their investment capital by investing in these…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform Your TFSA Into a Tax-Free Monthly Income Machine ($193 a Month!)

These TSX dividend stocks offer high yields and monthly payouts. You can earn over $193 in tax-free income per month.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA: Invest $10,000 in This TSX Stock That Thrives During Market Volatility

This TSX stock isn't your typical investment, but that could be a major benefit for investors.

Read more »

customer uses bank ATM
Bank Stocks

A Forever Dividend Pick: 29.4% Upside in This Canadian Stock

A Canadian Big Bank is a top pick for investors looking for pension-like passive income.

Read more »

senior man smiles next to a light-filled window
Retirement

3 Mistakes That Can Reduce Your Retirement Income

Avoid common retirement mistakes that can impact your finances during market downturns. Learn essential strategies to protect your savings.

Read more »

GettyImages-1394663007
Dividend Stocks

8% Yield: 2 Stocks I’d Buy in April 2025

April had a bearish start because of Trump’s reciprocal tariffs. This dip created an opportunity to lock in an 8%…

Read more »