The Motley Fool

Toronto-Dominion Bank: The Best Dividend Stock Among Top Lenders?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) enjoys a unique position among the top five Canadian lenders.

Its aggressive growth in the U.S. makes it the most diversified and safest lender. You may be surprised to know that TD has more retail branches south of the border than it does in Canada. On the back of this strong growth, TD has quietly become the eighth-largest lender in the U.S.

With its U.S. operations providing stability, this diversification makes TD a safe bet for long-term income investors, because the lender is in a much better position to withstand any slowdown in the domestic market.

In the third quarter, TD’s U.S. business provided 33% of the total net income.

Housing exposure

A potential weakness in the Canadian housing market remains one of the biggest threats to Canadian lenders.

Real estate lending accounts for anywhere from 30% to 60% of their total lending portfolios, with Canadian Imperial Bank of Commerce and Royal Bank of Canada having the greatest exposure among the top Canadian banks, while TD being the least exposed.

From the TD’s total real estate lending book, 44% of residential loans were insured in third quarter, protecting the bank from losses if the housing market faces a severe downturn.

This strength was evident in the company’s third-quarter earnings when TD reported a 17% jump in profits, boosted by a strong performance in its domestic banking segment.

The rebound in quarterly profits, which were the best in at least the past eight quarters, removed many concerns investors had about the lender’s slowing growth on the domestic side.

Strong dividend growth

When it comes to dividends, it is tough for other companies to match the generosity of the Canadian banks. TD distributes between 40% and 50% of its income in dividends.

After a 5% increase in its payout this year, income investors in TD stock now earn $0.60 a share quarterly dividend, which translates into a 3.2% yield on yearly basis.

The bank is likely to grow its dividend payout between 7% and 10% each year going forward — impressive growth that’s good enough to protect your investment from inflation.

The bottom line

Trading at $74.61 a share, TD stock is close to the 52-week high after an 18% surge in the past six months. This return is almost the double of the size other top lenders provided during the same period.

Despite this massive gain, I still think TD will outperform other bank stocks for all the reasons we discussed above. I do not think it is too late to add this solid dividend-paying stock to your portfolio.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Haris Anwar has no position in the companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.