Toronto-Dominion Bank’s (TSX:TD)(NYSE:TD) stock price was trading near all-time highs before the coronavirus crisis struck. But in March, all eyes were on developments related to the coronavirus. Societies are still attempting to lessen the human toll of this virus. They are doing this by taking measures that were unimaginable only a few months ago. As the realities of social distancing and isolation became increasingly clear, the economic fallout also became crystal clear.
Hence, the TSX, like other global markets, got hit hard in March. In this environment, it is no surprise that Canada’s leading financial institution beat the market so significantly.
Toronto-Dominion’s stock price beats the market because TD is a leading Canadian bank
In turmoil, Canadian banks like TD Bank have great resilience. It has the size, scale, and government support that it needs to survive. Toronto-Dominion Bank’s stock price is reflecting this. It is also reflecting the fact that the bank is well capitalized. In fact, before this crisis, TD Bank was coming off a period of record performance and prosperity.
During the 2008 crisis, TD’s conservative way of doing business meant that it not only survived but thrived afterward. Although the coronavirus crisis is a very different beast, TD Bank stock should once again benefit from this Canadian philosophy.
Toronto-Dominion’s stock price beats the TSX because of the perception that its dividend is reliable
To be sure, there will be pain in the months ahead. Already rising loan loss provisions and bad loans will accelerate at an unprecedented pace. Real estate markets are in disarray, and mortgage payments on 10% of mortgages have been paused. Banks are reducing interest rates on many credit cards. Capital markets divisions will be roiling and IPOs will dry up. All of these are clear struggles that TD Bank and all other banks will face.
Today, Toronto-Dominion Bank has a dividend yield of 5.28%. TD Bank recently adopted a once-a-year dividend-increase policy. It is a unique policy that the bank has committed to. The last increase was a 7% increase in the first quarter of fiscal 2020. While I wouldn’t bet on this yearly increase policy remaining through this crisis, I would not expect any dividend cuts. But the longer the shutdown lasts, the more likely we will actually see dividends being cut.
TD Bank will have the government’s support throughout this difficult time. It will not fail, but the road to better times may very well be a long one.
Foolish bottom line
Toronto-Dominion Bank’s stock price has outperformed the TSX in March. Investors who are looking for dividend income and safety have flocked to TD Bank stock. The bank is a relatively safe bet in that we should expect it to survive. But it also reflects the pulse of the economy, and the longer the Canadian economy is shut down, the harder this gets. Canadian banks like TD Bank will certainly see increasingly dramatic losses the longer this goes on.
We at Motley Fool are in it for the long haul. We make decisions to buy stocks that will be thriving 10 and 20 years from now. TD Bank is likely one of those stocks. It is extremely hard to call the bottom. But let’s just take note that the TD Bank stock price is much higher today than at the time of the 2008 crisis.
