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Toronto-Dominion Bank Is Simply the Best — Better Than All the Rest

Of the largest Canadian banks which have reported earnings, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has beaten expectations by the widest margin, pushing shares of the financial institution more than 3% higher in early trading on news of a massive earnings beat in its Q3 2017 earnings release on Thursday. According to a number of analysts, including RBC analyst Darko Mihelic, TD’s performance in Q3 2017 was simply the best among its peers, leading to the sharp increase in the company’s share price Thursday morning.

Earnings

TD reported an earnings per share (EPS) increase of more than 17% year over year, reflecting strong operating performance in the company’s Canadian and U.S. business segments. In addition to reporting EPS of $1.46 compared to $1.24 last year, the lender also reported retail net income growth of 14% year over year in both Canada and the U.S.

In Canada, retail sales increased to $1.7 billion, while its U.S. divisions saw retail sales increase to more than $900 million, representing strong profit growth in a U.S. segment which has traditionally grown at a slower rate than in Canada in recent years.

Multinational approach a hit for investors

Perhaps one of the key points to underscore with TD’s recent earnings release is the fact that the second-largest lender in Canada is growing appreciably better (more profitably and on a larger scale) than its Canadian counterparts in the U.S. market; this has eluded the vast majority of TD’s peers, which have generally taken an acquisition-heavy growth model in recent years in contrast to TD’s more organic retail growth approach, which has continued to serve TD’s shareholder base well.

TD’s earnings growth in the U.S. market is notable, making up a significant percentage of its overall net income in comparison to the vast majority of Canadian banks that see the lion’s share of revenue and net income driven solely by the Canadian market. From a diversification standpoint, TD’s current situation is enviable.

Share-buyback program also a hit

Another key focal point for investors looking at what was announced by TD in its Q3 earnings release is the announcement of a share-buyback program aimed at reducing the company’s overall share count by nearly 2% (or 35 million shares), taking a unique approach to returning value to shareholders than merely increasing its dividend — something most of its peers had done during this past quarter’s earnings season.

While TD has the lowest dividend yield of the “Big Five” Canadian banks, the announced share-repurchase program has turned out to be a big hit with investors, as long-term investors will enjoy the fact that TD’s shares are likely to increase at a faster rate in terms of capital appreciation over time, providing a nice mix of yield and capital appreciation over the long term.

Bottom line

TD remains my top pick in the Canadian financials space due to the diversification and profitability provided by the bank’s retail operations, as well as the company’s unique take on returning value to shareholders in the form of share buybacks as well as dividend distributions. I expect TD to continue to outperform its peers in the medium to long term and remain bullish on this bank’s prospects relative to its peers moving forward.

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Chris MacDonald has no position in any stocks mentioned in this article.

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