Toronto-Dominion Bank Down Over 7% Since March: Worth a Buy?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has given up value due to bad press. Take advantage of this and load up on cheaper shares.

| More on:
The Motley Fool

Bank stocks are supposed to be some of the top investments you can make. Because they provide a wide variety of financial products, they are able to extract fees and revenue from their customers repeatedly. In many respects, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the top bank in Canada.

But in March, CBC released a negative report about TD and that sent shares spiraling down. By the end of May, the company had given up nearly 10% of its value, which is a huge hit for a major financial institution. Since then, it has been slowly rising, but it’s still down over 7% from its high.

Is the bank worth investing in, or should investors avoid it?

The reason the stock got hammered so hard was due to a report that TD pressured its employees to meet high sales revenue goals. This resulted in the employees sometimes going too far with their sales tactics and occasionally breaking the law. In many instances, employees admitted to increasing people’s lines of credit without alerting them — a clear violation of the Federal Bank Act.

The actual negatives for TD were small from an earnings perspective, but it became a huge public relations hit. Bad press isn’t great for banks, and it reminded investors of the Wells Fargo & Co (NYSE:WF) fiasco in 2016. In that instance, the Consumer Financial Protection Bureau fined Wells Fargo for opening more than two million bank accounts and credit cards without customer knowledge.

When Wells Fargo was hit with a US$100 million fine, the stock also dropped by over 10%. But since then, the company has appreciated by 20%. This just goes to show that these bad hits are sometimes short-term pain, but in the long term, these banks print money, so investors are going to come back.

TD is the exact same way. It’s true that shares are down by 7%, but when we look at how the company is doing, the reality is simple: investors will be back, and they will push the stock higher. So, you should be greedy while major investors are afraid of the company. And here’s why…

In Q2 2017, TD delivered $1.34 per share in earnings, beating investor expectations of $1.24 and crushing the previous year’s earnings of $1.20. Net income was $2.5 billion, up from $2.1 billion in Q2 2016. South of the border was the star with an 18% boost in growth. This should only increase as interest rates in the United States grow, providing larger spreads for the bank to generate money.

TD then turns around and returns that money to its investors.

In the beginning of the year, the company boosted the dividend by 5%. Investors now earn $0.60 per quarter. Thanks to the drop, investors are now getting a lucrative 3.69% yield. So long as earnings continue going up — I see no reason why that’ll change — investors should expect future dividend increases as the years go by.

Investing in TD provides a smart investing lesson. The market is a living creature. Sometimes it is exuberant, pushing companies high. Sometimes it is terrified, pushing companies low. These movements are not based on the company’s numbers, but on emotions. If you can take advantage of that, you can load up on cheaper shares and ride the wave up.

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 Jacob Donnelly has no position in any stocks mentioned.

More on Bank Stocks

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

analyze data
Bank Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

This Canadian stock has about 49% ownership by the public, and with growth and dividends to consider, it's a top…

Read more »

falling red arrow and lifting
Stocks for Beginners

1 Dividend Stock Down 18% to Buy Right Now

CIBC (TSX:CM) is a strong dividend stock investors should certainly consider not just for passive income, but future growth as…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Forget TD Stock: 2 Tech Stocks to Buy Instead

TD remains a solid income stock but two outperforming tech stocks are better buys for their strong growth and upside…

Read more »

Question marks in a pile
Bank Stocks

Where Will Royal Bank of Canada Stock Be in 5 Years?

Royal Bank's continued focus on a strong capital position plus its acquisition of HSBC will likely ensure prosperous times ahead.

Read more »

Payday ringed on a calendar
Bank Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000 and TD Stock

TD (TSX:TD) stock has been a poor performer over the last few years, but could be a big passive-income winner…

Read more »

Man considering whether to sell or buy
Bank Stocks

Is RBC Stock a Buy, Sell, or Hold?

Shares of Royal Bank of Canada have delivered game-changing returns to shareholders in the last two decades. Is RBC stock…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Is Scotiabank (BNS) Stock a Buy, Sell, or Hold?

Let's dive into whether the Bank of Nova Scotia (TSX:BNS) remains a solid buy or if it's more of a…

Read more »