Is Toronto-Dominion Bank a Forever Stock?

Let’s look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to determine if it warrants a spot in investors’ portfolios forever.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The great Warren Buffett once proclaimed that his favourite holding period is “forever.” Are there any stocks in the Canadian market that could be bought today and held forever?

Let’s look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to determine if it fits that mould. This financial juggernaut employs 83,000 people in offices around the world and is the second-largest Canadian bank by market capitalization and the sixth-largest in North America. The company reported another strong quarter to finish off 2017, but let’s dig a little deeper before pulling the trigger.

Great track record

Past performance is by no means a sure predictor of future results, but it’s certainly a good starting point when analyzing a potential investment.

Looking at TD’s total shareholder return over the last 10 years, it boasts a compounded annual growth rate (CAGR) of 11.5%, which easily surpasses its Canadian and North American peers, who have managed, on average, a CAGR of 8.8% and 5.1%, respectively. To put that in perspective, a $1,000 investment in TD 10 years ago would be worth $2,970 today.

Most recently, TD delivered a solid fourth quarter to finish off another great year. The company reported earnings of $2.7 billion and EPS of $1.42, both up 18% compared with the same quarter last year.

The company continues to provide great returns to shareholders in the form of buybacks and dividends. TD has managed to grow its dividend by an astonishing annualized rate of 10% over the last 20 years. At the time of this writing, the dividend yield comes in at a very respectable 3.27%.

Growth prospects going forward

A great track record is only part of the story when it comes to making sound investments. Since the markets are forward looking, we also need to look at what TD has in store down the road.

The company has been on a remarkable expansion trajectory in the United States. It now provides a full range of products and services to more than nine million customers at more than 1,200 convenient locations. As impressive as these stats are, it is worth noting that the company only operates in 15 states and Washington, D.C., so it appears like there is room to further expand south of the border.

TD has stated in its fourth-quarter earnings release that it targets a 7-10% adjusted EPS growth over the medium term. For a company that size, this represents a very acceptable growth rate. When combining a growing EPS with the current payout ratio of only 43%, future dividend payments appear to be fairly safe, and there is also room for dividend hikes.

Foolish bottom line

Given its past performance and growth prospects, TD is definitely worthy of investors’ consideration.

Investors have to keep in mind the risks associated with this investment. No equity investment is riskless, but a great way to mitigate at least some of that risk is to extend the holding period. One could even make the case for extending it to forever.

TD is currently trading above its peers with a trailing P/E ratio of 13.41 and a forward P/E ratio of 11.72. These metrics do not imply a screaming buy at today’s price, but I think that investors could do a lot worse than to add this fantastic company to their portfolios—forever.

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 Patrick Giroux owns shares in TD.

More on Bank Stocks

Man holding magnifying glass over a document
Bank Stocks

TD Bank Stock Looks Severely Undervalued Going Into the 2nd Half of 2022

TD Bank (TSX:TD)(NYSE:TD) stock has been under pressure amid the TSX Index correction but may be among the best bounce-back…

Read more »

Coworkers standing near a wall
Bank Stocks

Policy Rate: 2 More Hikes After July 2022 to Reach Neutral Level

The Bank of Canada might need three more rate hikes beginning in July 2022 to reach neutral levels.

Read more »

You Should Know This
Bank Stocks

75-Basis-Point Rate Hike? Here’s What it Means for Stocks

Aggressive rate increases dampen investors’ sentiment and send share prices tumbling, because the hikes can impact corporate earnings or profits.

Read more »

You Should Know This
Bank Stocks

TD Bank Stock Faces Challenge From U.S. Senate!

Toronto-Dominion Bank's (TSX:TD)(NYSE:TD) latest deal is being blocked by the U.S. Senate.

Read more »

question marks written reminders tickets
Bank Stocks

Is TD Bank (TSX:TD) or Royal Bank (TSX:RY) Stock a Buy?

Canadian banks appear oversold. Is this the right time to buy TD or Royal Bank stock?

Read more »

edit Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Bank Stocks

2 Top TSX Financial Stocks to Buy for a Retirement Fund During the Market Correction

These top TSX financial stocks now look oversold for a self-directed TFSA or RRSP portfolio.

Read more »

Growth from coins
Dividend Stocks

Dividends Aren’t Guaranteed, Yet 3 TSX Stocks Keep Raising Payouts

No company will guarantee dividend payments, but three TSX Dividend Aristocrats will not break their dividend-growth streaks.

Read more »

Technology
Bank Stocks

Should You Buy TD Bank (TSX:TD) Stock Now?

TD stock looks oversold. Is this the right time to buy?

Read more »