Can the Toronto Dominion Bank Keep the Dividend Hikes Coming?

Don’t ignore the Toronto Dominion Bank (USA)(TSX:TD)(NYSE:TD) because of its small yield.

| More on:
The Motley Fool

A lot of companies raise their dividends, but few are as predictable as the Toronto Dominion Bank (TSX: TD)(NYSE: TD).

For more than a decade, the bank has been in the habit of increasing its payout a couple of pennies almost every other quarter. That includes the most recent bump in April, when the company hiked its quarterly dividend 9% to $0.47 per share.

Those small increases may seem puny in isolation, but they can add up to some hefty gains for shareholders. Since 2004, TD’s dividend has shot up 175%. If you had bought and held the stock over that time, the yield on your original investment would be nearly 10% today.

Can TD keep those dividend hikes coming? Analysts think so, given the company’s recent track record and growth prospects.

Touted as ‘America’s Most Convenient Bank’, TD is now the sixth largest retail banker on the continent. Thanks to old-fashioned Canadian conservatism, the firm was well capitalized before the financial crisis. That has allowed TD buy out a number of great American banks on the cheap.

Now that bet is paying off. Today, every U.S. business indicator – including jobs, home prices, and auto sales – is on the upswing. That means more loans, more mortgages, and more credit cards. As a result, TD’s American banking group is the fastest growing division within the company.

“U.S. Retail continued to deliver on our organic growth strategy,” said Mike Pedersen, Group Head of U.S. Banking in August, adding “customer acquisition and deposit and lending growth were strong, with business lending especially good in the third quarter.”

TD’s expansion isn’t limited to the United States, either. Last quarter, the company’s wealth management division posted record earnings thanks to a booming stock market and strong demand for mutual funds. The firm’s credit card profits were also up big thanks to a partnership with Aimia Inc’s Aeroplan loyalty program.

Of course, there are some holes in the TD story. This company is no slam dunk. While the firm is doing well south of the border, investors are worried about a retail banking slowdown right here in Canada.

The yield on five-year Government of Canada bonds has fallen more than 40 basis points since the start of the year, which has weighed on margins. “The banks are still facing a pretty tough operating environment.” Chief Financial Officer Colleen Johnston said after the firm’s last quarterly report, “We’re seeing slowing loan growth and low interest rates.”

That said, one disappointing quarter doesn’t discredit the company’s growth story. While TD’s mortgage business is slowing, the firm is finding new ways to grow profits elsewhere. The company is expanding operations in other divisions such as personal and business loans. Auto insurance profits have also been solid.

All of which suggests that TD will be delivering dividend hikes for many years to come.

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 Robert Baillieul has no position in any stocks mentioned.

More on Dividend Stocks

money cash dividends
Dividend Stocks

The 2 Stocks Every Dividend Investor Should Own for Reliable Cash

Dividend stocks offering consistent and reliable returns can be a crucial asset in any portfolio, especially for income-producing dividend portfolios.

Read more »

grow dividends
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These top TSX dividend-growth stocks now offer yields above 7%.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Building a large, tax-free nest egg in your TFSA with growth stocks can give you more control over your tax…

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Dividend Stocks

May Boycotts: Is Loblaw Stock in Trouble?

Even extreme fluctuations in consumer purchasing patterns may not impact a stock as aggressively as demoralizing actions like boycotts.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Want $2,000 in Annual Dividends? Invest $27,000 in These 3 Stocks

These three top dividend stocks could help earn a stable passive income.

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Absurdly Cheap Stocks to Buy and Hold for Years

Looking for some great stocks to buy for long-term growth? Here are three absurdly cheap stocks that are impossible to…

Read more »

Canadian Dollars
Dividend Stocks

Earn $100 Monthly With a Simple $17,025.75 Investment

A less than $20,000 investment in a high-yield energy stock can produce $100 every month.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

Innergex Cut its Dividend: Is the Stock Still a Buy?

While a dividend cut is bad news for existing investors, it may present a good buying opportunity for new investors.

Read more »