Why Toronto-Dominion Bank Is Down About 2%

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is down about 2% following its Q4 earnings release. Should you buy on the dip? Let’s find out.

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Toronto-Dominion Bank (TSX:TD)(NYSE:TD), the largest bank in Canada as measured by assets, released its fourth-quarter earnings results yesterday, and its stock has responded by falling about 2% in early trading. Let’s take a closer look at the quarterly results and the fundamentals of its stock to determine if this decline represents a long-term buying opportunity.

The fourth-quarter results

Here’s a quick breakdown of 10 of the most notable financial statistics from TD Bank’s three-month period ended October 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Net interest income $5,330 million $5,072 million 5.1%
Non-interest income $3,940 million $3,673 million 7.3%
Total revenue $9,270 million $8,745 million 6.0%
Adjusted net income $2,603 million $2,347 million 10.9%
Adjusted diluted earnings per share (EPS) $1.36 $1.22 11.5%
Total assets $1,278,995 million $1,176,967 million 8.7%
Total deposits $832,824 million $773,660 million 7.6%
Total loans, net of allowance for loan losses $612,591 million $585,656 million 4.6%
Total equity $75,190 million $72,564 million 2.3%
Book value per share $37.76 $36.71 2.9%

Should you buy on the dip?

It was a very strong quarter overall for TD Bank, and it capped off a great fiscal year for the company, in which its revenue increased 5.3% to $36.15 billion, and its adjusted diluted EPS increased 13.7% to $5.55 compared with fiscal 2016. With these solid results in mind, I do not think the 2% drop in its stock is warranted, and I think it represents an attractive entry point for long-term investors for two fundamental reasons.

First, it’s undervalued. TD Bank’s stock now trades at just 13.3 times fiscal 2017’s adjusted EPS of $5.55 and only 12.5 times fiscal 2018’s estimated adjusted EPS of $5.90, both of which are inexpensive given its current earnings-growth rate, its estimated 8.7% long-term earnings-growth rate, and the low-risk nature of its business model.

Second, it’s a dividend aristocrat. TD Bank currently pays a quarterly dividend of $0.60 per share, representing $2.40 per share annually, giving it a rich 3.3% yield. Investors must also note that fiscal 2017 marked the seventh consecutive year in which it had raised its annual dividend payment, and its 9.1% hike in March has it positioned for fiscal 2018 to mark the eighth consecutive year with an increase.

TD Bank’s stock is up over 13% since it released its third-quarter earnings results on August 31, and I think it is still a great long-term buy today, so take a closer look and consider initiating a position 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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