3 Reasons to Buy Toronto-Dominion Bank Today

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a strong buy today for three reasons. Should you be a buyer?

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Toronto-Dominion Bank (TSX:TD)(NYSE:TD), the second-largest bank in Canada, watched its stock rally about 7% in March. It now sits over 3% higher for the year, and I think this was only the beginning of a sustained rally higher. Let’s take a look at three reasons why I think this, so you can determine if you agree and if you should buy the stock today.

1. Its strong Q1 results could support a continued rally

On the morning of February 25, Toronto-Dominion released very strong earnings results for its first quarter ended on January 31, 2016, and its stock has responded by rising over 9% in the weeks since. Here’s a quick breakdown of 10 of the most notable statistics from the report compared with the first quarter of fiscal 2015:

  1. Adjusted net income increased 5.8% to $2.25 billion
  2. Adjusted diluted earnings per share increased 5.4% to $1.18
  3. Total revenue increased 13.1% to $8.61 billion
  4. Net interest income increased 10.7% to $5.05 billion
  5. Non-interest income increased 16.7% to $3.56 billion
  6. Total assets increased 8.6% to $1.17 trillion
  7. Total deposits increased 9.5% to $736.53 billion
  8. Total loans, net of allowance for loan losses, increased 11.4% to $567.03 billion
  9. Total assets under management increased 8.7% to $346.73 billion
  10. Book value per share increased 13.9% to $35.99

2. Its stock is undervalued

At today’s levels, Toronto-Dominion’s stock trades at just 11.7 times fiscal 2016’s estimated earnings per share of $4.78 and only 11.1 times fiscal 2017’s estimated earnings per share of $5.07, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 13 and the industry average multiple of 13.1.

With the multiples above and its estimated 7.2% long-term earnings growth rate in mind, I think Toronto-Dominion’s stock could consistently command a fair multiple of at least 13, which would place its shares around $62 by the conclusion of fiscal 2016 and around $66 by the conclusion of fiscal 2017, representing upside of more than 10% and 17%, respectively, from today’s levels.

3. It has a great dividend

Toronto-Dominion pays a quarterly dividend of $0.55 per share, or $2.20 per share annually, which gives its stock a high and safe yield of about 3.9%.

It is also important to make two notes.

First, Toronto-Dominion has raised its annual dividend payment for five consecutive years, and its recent increases, including its 7.8% hike in February, have it on pace for 2016 to mark the sixth consecutive year with an increase.

Second, the company has a target dividend-payout range of 40-50% of its adjusted net earnings, so I think its consistent growth, including its aforementioned 5.8% year-over-year growth to an adjusted $1.18 per share in its first quarter of fiscal 2016, should allow its streak of annual dividend increases to continue going forward.

Is now the time for you to buy Toronto-Dominion Bank?

Toronto-Dominion Bank is a strong buy, so all Foolish investors should strongly consider establishing long-term positions today.

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 Joseph Solitro has no position in any stocks mentioned.

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