Canadian investors are searching for top-quality dividend stocks to add their TFSA portfolios.
The strategy makes sense for millennials who are starting a retirement savings fund, especially when the distributions are used to buy new shares. Retirees and other income investors can also take advantage of the tax-free status of the TFSA to pocket the full value of their dividends.
TD reported fiscal Q2 2018 adjusted net income of $3.06 billion compared to $2.56 billion in the same period last year. Yes, TD pulled in a cool $1 billion per month in profits.
The Canadian retail banking segment saw reported earnings jump 17% on a year-over-year basis, and the U.S. retail segment delivered a 16% gain. The bank’s wholesale banking group also had a solid quarter, reporting earnings growth of 8% compared to fiscal Q2 2017.
Overall, TD continues to deliver results that are above the company’s medium-term guidance of earnings-per-share (EPS) growth of 7-10%.
TD is primarily known for its Canadian business, but the company has invested billions over the past decade to build a strong American presence. In fact, TD now has more branches located south of the border than it does in the home country. This provides a nice hedge against any potential downturn in the Canadian economy.
Rising interest rates could force some homeowners to sell their properties when the time comes to renew their mortgages. If a wave of homes hits the market at the same time, prices could drop more than expected, and this would be negative for the banks.
TD finished fiscal Q2 2018 with $269 billion in mortgages on the books. Insured mortgages represent 39% of the portfolio, and loan-to-value ratio on the uninsured loans is 52%. This means house prices would have to fall significantly before TD takes a material hit.
TD has a 20-year compound annual dividend-growth rate of better than 10%. The company raised the payout by 11.7% earlier this year, so management is obviously comfortable with the revenue and earnings outlook.
At the time of writing, TD’s dividend provides a yield of 3.6%.
Long-term investors have done well with this stock. A $10,000 investment in TD just 20 years ago would be worth more than $80,000 today with the dividends reinvested.
Should you buy?
A downturn in the Canadian housing market should be expected, but TD is capable of riding it out, and higher interest rates tend to be a net positive for the banks.
If you are looking for a top dividend pick for your TFSA, TD deserves to be on your radar.