Toronto-Dominion Bank (TSX:TD) Stock: Grab the 4.4% Yield Now

After a massive fourth quarter earnings beat, The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock is looking like a huge buy.

| More on:

The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock is a high yield play with a sustainable dividend that all income investors should consider. Sporting a 4.4% yield and admirable earnings growth, it’s perfectly positioned to thrive in the years ahead.

In its most recent quarter, the bank delivered a stunning earnings beat. As a result, the stock is close to erasing all of its COVID-19 losses. In this article, I’ll make the case that you should buy TD stock if you like high yield and dividend growth.

A massive Q4 earnings beat

In the fourth quarter, TD utterly destroyed earnings estimates, with GAAP net income up a whopping 80% year over year. That was mainly due to a one time $2.3 billion gain on the sale of TD Ameritrade to Charles Schwab (NYSE:SCHW). That’s of course a one-time, non-recurring factor that won’t influence future results.

But even without the gain on the sale, TD posted positive earnings growth, with adjusted EPS up 1% year over year, which is in itself is encouraging, because it shows that TD Bank is beginning to erase its COVID-19 damage.

A partner in the world’s largest brokerage

Another thing to consider about TD Bank’s Charles Schwab deal is its contribution to future earnings. Charles Schwab is the world’s largest brokerage company, and TD now owns a 13.5% stake in it, which means that Charles Schwab’s earnings will now contribute to TD’s own earnings and pay out a dividend that boosts cash flow.

Of course, TD had plenty of earnings and dividends coming from TD Ameritrade itself. But the Schwab-Ameritrade deal created a titan of a company with lots of synergies perfectly positioned to gobble up market share in the no-fee trading world. TD Ameritrade on its own was not well positioned for no-fee trading, so the buyout by Charles Schwab was a win for TD Bank.

Foolish takeaway

Over the years, TD Bank has been a champion dividend stock that has rewarded investors handsomely. Heading into 2021, that looks ready to continue.

Already, TD Bank is beginning to reverse the damage it took from COVID-19. As well, it’s now got a massive ownership stake in the world’s largest brokerage firm.

For years, the main investment thesis for buying TD over any other Canadian bank was its growth potential in the United States.

Now, thanks to the Schwab deal, that thesis has been strengthened. While TD’s core U.S. retail operations will face margin compression from low interest rates, its brokerage investments look set to thrive.

All of this points to a very safe 4.4% yield if you buy TD Bank shares today. TD has a low payout ratio and plenty of potential for earnings growth going forward. The dividend will only going to increase from this point onward.

The lesson? If you’re hungry for yield, grab the 4.4% on offer from TD Bank 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 Button owns shares of TORONTO-DOMINION BANK.

More on Dividend Stocks

woman analyze data
Dividend Stocks

The Smartest Dividend Stocks to Buy With $1,000 Right Now

Do you have some cash to invest but want to earn a safe, low-risk dividend return? These dividend stocks are…

Read more »

An investor uses a tablet
Dividend Stocks

5 Canadian Dividend Stocks I Think Everyone Should Own

These Canadian stocks have a solid track record of dividend growth and offer compelling yields near their current market price.

Read more »

calculate and analyze stock
Dividend Stocks

This 4.4% Dividend Stock Pays Cash Every Single Month

This high-quality Canadian dividend stock offers an attractive yield and plenty of long-term growth potential.

Read more »

edit Safe pig, protect money
Dividend Stocks

3 TSX Dividend Aristocrats That Can Weather Any Economic Storm

Market volatility has investors wondering which stocks can withstand an economic storm. Here are three to consider today.

Read more »

people relax on mountain ledge
Dividend Stocks

Top Canadian Stocks to Buy for Passive Income 

Are you building a passive income portfolio that can beat inflation and provide higher purchasing power? You could consider buying…

Read more »

voice-recognition-talking-to-a-smartphone
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 40 Percent to Buy and Hold Forever

This magnificent Canadian dividend stock trades at a huge discount, offers stellar growth, and pays one of the best yields…

Read more »

A plant grows from coins.
Dividend Stocks

Top Canadian Stocks to Buy for Dividend Growth

Dividend growth stocks can be a good option to build a passive income that beats inflation and improves buying power.

Read more »

Concept of multiple streams of income
Top TSX Stocks

The Best Stocks to Invest $1,000 in Right Now

Here are some of the best stocks that every investor should own today to generate massive income and strong growth…

Read more »