Strong Q1 Results Prove Why Toronto-Dominion Bank Is the Best Canadian Bank Stock

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) produced another great quarter, as the company got a big boost from its U.S. operations.

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Toronto-Dominion Bank (TSX:TD)(NYSE:TD) posted its first-quarter results on Thursday, as the bank continued to show strong growth, and it also hit a record level of earnings from its operations south of the border.

TD beat analyst expectations for the quarter and rebounded from a Q4 that fell short of estimates. However, let’s have a look ourselves at just how the bank did and see if it’s a good buy today.

The highlights

Sales of $9.4 billion in Q1 were up only 2.6% from last year, while net income was actually down 7%. However, on an adjusted-earnings basis, the company reported a net income of $2.9 billion, which was up more than 15% from last year’s total of $2.6 billion.

At first glance, the quarter does not look as strong as it sounded, so let’s take a closer look at how each of the segments did.

Breakdown by segment

In its Canadian retail operations, TD’s revenues were up 7%, as the bank continues to benefit from rising interest rates and a growing economy. Net income for the segment totaled $1.8 billion and was up over 12% from last year.

In the U.S. retail segment, the bank’s sales rose 5%, as it benefited from higher volumes and margins. Net income for the quarter was $952 million and up 19% from a profit of $800 million in 2017. A big reason for the improvement in the bottom line came as a result of a lower provision for taxes, which added over $40 million to the segment’s overall profitability.

TD’s wholesale banking segment also saw a modest increase in its top line with sales rising by 2%, while profits were up by 4%.

While at an operational level, TD did well, it was its corporate segment that brought down the overall performance for the bank. The segment incurred a loss of $634 million this past quarter compared to just $100 million a year ago.

Like we’ve seen with other banks, the U.S. tax reforms had a big impact on TD’s overall results and were responsible for much of the decline. However, with a significant presence south of the border, TD is expected to benefit the most of the big banks with an estimated $300 million expected to be added to its net income this year as a result of the reduced tax rates.

Dividend hiked 12%

TD also announced in its earnings report that its quarterly dividend would be rising to $0.67, which is a $0.07 increase from the current payout. The company has a strong track record for increasing its dividends, and in five years the bank’s payments have grown by 65% for a compounded annual growth rate of 11%.

Why TD is a good buy today

The U.S. economy is continuing to grow, and corporate tax cuts will only help accelerate that. TD stands to be a big benefactor of that growth and with Canadian operations also doing well, there’s a lot to like about where TD is today.

Not only will you secure a strong dividend stock that will grow over the years, but there are also excellent growth opportunities that can help the stock appreciate in value as well.

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 David Jagielski has no position in any of the stocks mentioned.

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