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.