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Why Toronto-Dominion Bank Is Down About 2%

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.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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