While there is often significant malice felt towards banks for all sorts of reasons as consumers, when it comes to investing in them, banks are one of the best investments you can make. They’re cash-generating machines and absolutely belong in your portfolio. One bank that I’ve been paying more attention to recently is Toronto-Dominion Bank (TSX:TD)(NYSE:TD).
Due to how the stock market has been behaving, all sorts of stocks have been dropping in price, including TD. In my opinion, this stock belongs in your portfolio and, due to the 14% drop in price over the past three years, I believe this is a great place to start acquiring shares in the company. However, it isn’t just the price that makes this a great stock to buy. Here are three reasons to buy this portfolio builder.
1. Low risks
One reasons investors have been really concerned about banks is due to exposure to the oil sector. With oil plummeting in price, any bank that has issued loans to these oil companies could be at risk. TD is not one of those banks.
According to the bank, approximately 1% of its loans are in the oil and gas sector. Even if every single one of its loans were to default, that’s only 1%, a number not great enough to significantly impact the company in any shape or form.
Because of this, I view TD as a very safe business when it comes to risk. It would take a financial crisis for the bank to have problems.
2. Diversified sales and revenue
I walked out of my apartment this morning and a block later I was standing in front of a TD Bank. This bank has an incredible network of retail branches that are staffed by people who have two jobs: help the customers and sell them things.
Part of that diversification is that Toronto-Dominion has invested close to $17 billion to build out 1,300 branches in the United States. This has resulted in the U.S. accounting for nearly a quarter of the bank’s net income.
This is significant because the U.S. economy is getting stronger. Should problems occur in Canada, at least there can still be a strong U.S. economy generating revenue for the bank. And that’s what will be necessary to support the third reason to invest.
3. Amazing yield
Based on the price of the stock, TD is paying a lucrative 4.02% yield. This comes out to $2.04 per share per year. While I care about the amount of yield, I also care about the long-term prospects of that dividend and if it’s going to rise. The bank has a payout ratio of 47%, which is very safe in my book.
Further, the company has been increasing its dividend every year since 1994. Its last increase was in April, and if profits continue to rise, that dividend should get even higher.
Because of these three reasons, I believe in investing in Toronto-Dominion Bank. However, that’s just one of the many banks in the country that is worth looking at.
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I've only touched on the surface of Toronto-Dominion in this article. Before buying, you should definitely do more research on this bank and all the others. In this FREE report, we cover everything you need to know about Canada's Big Five--whether you're already an investor or are considering buying shares. Simply click here to receive your special FREE report, “What Every Bank Shareholder MUST Know."
Fool contributor Jacob Donnelly has no position in any stocks mentioned.