TFSA Bargain Hunters: Why it’s Time to Load Up on Toronto-Dominion Bank Before the “Sale” Ends

Here’s why it’s time to buy Toronto-Dominion Bank (TSX:TD)(NYSE:TD) on the dip.

| More on:

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is one of the few dividend-growth kings that you can comfortably buy for your TFSA on any form of weakness without the need to worry about moat deterioration or any other long-term implications.

Not only is the bank a wonderful outlet into the red-hot U.S. market, but TD Bank has one of the best risk-management strategies out there, making it better insulated from a single point of failure (like a Canadian housing collapse) than many of its peers in the Big Six. TD Bank has also been one of the most conservative lenders out there, so newly announced mortgage rules really won’t cause any detrimental effects to the top or bottom line. This conservative approach has led to vastly fewer loan losses and a lower implied volatility on the earnings front.

Moreover, TD Bank’s focus on retail banking has also helped pave the way for a lesser amount of earnings volatility. It’s this lack of volatility that has made TD Bank one of the highest-quality premium banks of the Big Five. And that’s not even taking into consideration management’s commitment to embracing of technology to future-proof itself from potential up-and-coming disruptors in the FinTech space.

The large number of software patents that TD Bank has made over the past few years leads me to believe that TD Bank is treating the tectonic shift the industry is about to face as an opportunity to get the leg-up on its peers through patented technological applications that will give the company a durable competitive edge over peers that will be inclined to follow suit.

Given the immense disruption that technology is going to have on the financial services industry, TD Bank realizes that to protect its business from disruption, it’s going to need to double-down on tech, whether it’s through filing patents to protect innovative new tech applications or through the acquisition of smaller FinTech firms for their talent pools.

With all this in mind, it’s not a mystery why shares of TD Bank have historically traded at a hefty premium over its peers. At the time of writing, though, TD Bank shares are down over 8% from their 52-week high. And although worthy of a premium multiple, the stock is not the most expensive Canadian bank based on its trailing P/E multiple. That title goes to Royal Bank of Canada for the time being. TD Bank stock trades at a 11.3 forward P/E and a 1.9 P/B, both of which are lower or in line with its five-year historical average multiples of 13.3 and 1.9, respectively. The dividend yield, currently at 3.8%, is also 0.5% higher than it normally is.

Given TD Bank’s lower volatility and evidence of its technological innovation, I think shares are an absolute bargain at these levels, so those with room in their TFSAs should strongly think about initiating or adding to their position today, because I don’t think this discount will be sticking around forever.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of TORONTO-DOMINION BANK.

More on Dividend Stocks

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Disability Benefits: Are You Eligible?

Fortis Inc (TSX:FTS) stock could provide you with passive income if you can't get CPP disability benefits.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

2 of the Best Canadian Dividend Stocks to Buy in September 2023

These two of the best Canadian stocks could help you receive dividend income, even in difficult economic environments.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Passive Income: 3 Amazing Stocks That Earn $1,600/Year

Are you looking how to earn $1,600 a year tax-free? These three Canadian stocks are a good bet for passive…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Great Canadian Dividend Stocks to Buy Now for High Yields

TC Energy and Bank of Nova Scotia are good examples of top TSX stocks paying attractive dividends that should continue…

Read more »

Man considering whether to sell or buy
Dividend Stocks

DND Stock: Buy, Sell, or Hold?

DND stock (TSX:DND) fell by 17% after producing earnings that once again fell below analyst estimates. But does that mean…

Read more »

question marks written reminders tickets
Dividend Stocks

SNC Stock Changes Name, But Is it Enough?

SNC (TSX:SNC) stock made it official and is breaking from the past, rebranding with a new name. But is it…

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

TFSA: How Retirees Can Generate $2,400 Per Year in Passive Income

This investing strategy reduces risk while generating great yields.

Read more »