The Motley Fool

TFSA Investors: A Top Dividend Stock to Buy When the Market Tanks

Image source: Getty Images

Bargain hunters are finally getting a chance to pick up some top-quality dividend stocks at attractive prices.

Let’s take a look at Toronto Dominion Bank (TSX:TD)(NYSE:TD) to see why it might be a buy when the market pulls back.

American presence

TD is a leader in the Canadian banking sector, but its U.S. group actually has more branches.

TD spent billions of dollars over the past 15 years to purchase regional banks in the United States strategically located along the country’s east coast.

The American division provides more than 30% of profits, and investors should see growth continue in the business.

The U.S. operations provide a solid hedge against potential weakness in Canada and give investors a good way to gain exposure to the American economy through a top Canadian company.

Any time the U.S. dollar rises against its Canadian counterpart, the bottom line gets a nice boost because of the higher conversion rate on the American profits.

5 TSX Stocks Under $5

Click here to learn more!


The current trade war between the U.S. and China could go on longer than expected, pushing the American economy into a recession. That would be negative for TD, but the duration should be short.

In the end, both China and the United States are reliant on each other and the governments can’t afford to plunge their economies into a deep downturn.

The result of the battle has been a halt to rising interest rates, as well as declining bond yields.

On one hand, the recent decision by the U.S. Federal Reserve to actually cut interest rates will squeeze net interest margins in TD’s U.S. business, and the Bank of Canada’s decision to stop raising rates has pundits speculating the next move could be a reduction.

At the same time, lower interest rates and the recent trend of falling bond yields are enabling banks to offer reduced mortgage rates, which should revive home sales.

Lower fixed-rate mortgage costs are also reducing default risks for existing homeowners who have to renew their loans. A potential crash in the Canadian residential housing market has been a worry for the past few years, which is likely in the current environment.

Should you buy TD?

Historically, any meaningful pullback in TD’s share price has proven to be a good entry point for buy-and-hold investors. The stock already offers a 3.9% yield with steady dividend increases expected in line with targeted earnings growth of 7-10% per share.

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

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 Andrew Walker has no position in any stock mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.