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Is This a Good Time to Own Toronto-Dominion Bank?

The oil rout and a possible housing bubble have many investors concerned about the potential threat to Canada’s big banks.

Let’s take a look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to see if it deserves to be in your portfolio today.

Earnings

TD’s fiscal Q3 adjusted earnings rose 6% compared with the same period last year.

The Canadian operations saw a slight drop in income due to losses incurred in Alberta as a result of the damage caused by the wildfires. This was offset by strong earnings growth south of the border. In fact, the U.S. division delivered a solid 14% gain in year-over-year net income.

The American exposure is a key reason many investors turn to TD, and the company’s U.S. operation continues to grow.

Risks

TD is also popular because it is widely viewed as the safest Canadian bank.

The company gets the majority of its income from retail banking. This part of the business tends to deliver consistent revenue as opposed to capital markets activities, which can be very profitable, but also quite volatile when the financial markets hit a speed bump.

Oil and gas loans have been widely discussed in recent years, and each bank breaks down its energy exposure when reporting quarterly results. TD’s energy loans represent less than 1% of the company’s total look book, so there is little concern on that front.

Housing is another part of the business that keeps some investors up at night. The Canadian residential market is widely viewed as being overpriced by as much as 30%.

A pullback would definitely have an impact on the Canadian banks, and TD would not escape the pain. However, 53% of the company’s mortgage portfolio is insured and the loan-to-value ratio on the remaining mortgages is 58%. This means house prices would have to fall significantly before TD incurs material losses.

Growth

TD continues to expand its operations in the United States. The company recently announced the acquisition of Albert Fried & Company, a New York–based broker-dealer.

The bank is also rumoured to be one of the bidders for Richardson GMP, a Canadian wealth management company.

Dividends

TD raised its dividend by nearly 8% earlier this year and has delivered 12% annualized dividend growth over the past two decades.

The latest increase indicates management’s confidence that earnings growth will continue at a healthy clip. CEO Bharat Masrani has said he thinks the company can grow earnings per share by 7-10% over the medium term.

The current quarterly payout of $0.55 per share yields 3.8%.

Should you buy?

The stock isn’t as cheap as it was earlier in the year, but TD remains a solid pick for investors with a buy-and-hold strategy.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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