Should You Buy Shares of Toronto-Dominion Bank (TSX:TD)?

Toronto-Dominion Bank (TSX:TD) (NYSE:TD) failed to impress investors with its latest earnings report, but here is why the company is worth consideration.

| More on:
Bank sign on traditional europe building facade

Image source: Getty Images

Amid a tightening economic environment and the threat of lower interest rates, banks are under increasing pressure to show that they can perform relatively well in the current climate. Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is perhaps better equipped than most of its peers to do so due to its geographically diverse operations.

However, TD Bank’s latest earnings report was not particularly well-received. The company’s management, however, expressed optimism about its prospects. Of course, the job of management is to put a positive spin on any financial results, no matter how poor they may be.

But perhaps we need to take a closer look at the Toronto-based financial institution. Should you buy shares of TD Bank today? 

The case for TD Bank

TD Bank is one of the largest Canadian banks by market cap, and the company holds a healthy share of the domestic market. The firm also possesses a strong presence in the U.S. — stronger than that of any of its peers. Not only does TD Bank own more branches south of the border than any other Canadian bank, but the company also owns about 40% of TD Ameritrade.

TD Bank does an admirable job of performing well within both Canada and the US, which account for about 60% and 30% of its revenues, respectively. The firm’s latest financial results showed notable increases in both Canadian and U.S. retail sales. 

Further, the company recorded a record profit. TD Bank’s net income was $3.2 billion, a 4.5% increase year over year. TD Bank’s exposure to the U.S. market has been increasing in recent years. Such strong exposure to two lucrative markets makes the company attractive.

TD Bank offers investors several more incentives to investors, perhaps most notably its dividends. The company currently boasts a juicy dividend yield of 4.09% and a payout ratio of just under 45%. TD Bank’s dividends have grown by 57% over the past five years. Finally, TD Bank currently trades at just 11.59 times past and 10.16 times future earnings. 

The case against TD Bank

Despite its seemingly excellent financial results, TD Bank did not post earnings on par with analyst estimates. In addition, digging deeper into TD Bank’s latest earnings reports reveals a worrisome trend. The company has generally posted higher interest margins than those of its peers.

During its last few quarters, however, net interest margins have been decreasing, and this is especially worrying given that interest rates might be slashed. If the firm continues to lose ground to its competitors in this department, it could spell trouble down the road. Considering the current shaky economic environment in North America, the company’s latest earnings report did little to assuage investors’ fears.

Should you buy?

TD Bank’s latest quarter might have been a bit disappointing. However, the firm’s strong position in both Canada and the U.S. is an advantage that outweighs its recent shortcomings.

Note that the banking sector is usually hit hard during a recession, so it wouldn’t be surprising if TD Bank is, too. The company’s long-term thesis, though, remains intact. TD Bank is still an attractive option, especially for investors who aren’t phased by short-term volatility. 

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 Prosper Junior Bakiny has no position in any of the stocks mentioned.

More on Dividend Stocks

Money growing in soil , Business success concept.
Dividend Stocks

This Canadian Monthly Dividend Stock Pays 11.5% Every Year

Here’s a great Canadian dividend stock you can consider buying now to earn handsome passive income each month.

Read more »

Dividend Stocks

Already up 15.87%: Is Dollarama Stock Still Worth Buying Today?

Is Dollarama stock worth buying as a defensive growth stock, despite inflation normalizing in recent months?

Read more »

grow money, wealth build
Dividend Stocks

Looking for Dividend Stocks in Canada? Check Out These Top Picks

Invest in these two top dividend stocks in Canada for long-term wealth growth through a self-directed passive income stream.

Read more »

value for money
Dividend Stocks

Here are 4 TSX Stocks That Look Like Great Buys for Value Investors

Four TSX stocks with strong fundamentals but underperforming in 2023 are great buys for value investors.

Read more »

The sun sets behind a high voltage telecom tower.
Dividend Stocks

Why TSX Utility Stocks Look Appealing Right Now

TSX utility stocks will likely outperform this year given the impending recession and steady rates.

Read more »

financial freedom sign
Dividend Stocks

2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Quality TSX stocks such as Brookfield Renewable Partners have the ability to increase long-term investor wealth at a consistent pace.

Read more »

Canadian Dollars
Dividend Stocks

How to Create a Passive-Income Portfolio With Just $6,500

A passive-income portfolio is easy to start and easy to grow, as long as investors remain consistent. You can even…

Read more »

Happy couple being attended by office worker at office
Dividend Stocks

My 2 Favourite Canadian Dividend Stocks for Wealth in the Long Run

These two TSX dividend stocks offer attractive dividend yields and reliable track records for paying shareholders their dividends.

Read more »