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Long-Term Investors: Want a +15% Annual Return for the Next 25 Years?

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Those with a long-term investing time horizon: This stock is for you.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a company that has provided investors with a compound annual growth rate (CAGR) of 15% for the past 25 years. This is stock price appreciation alone, net of dividends. The company’s dividend has grown steadily as well over time at an average rate of around 11% per year.

Here’s why I think a similar growth trajectory could be on the horizon for the next two-and-a-half decades.

Technology continues to improve returns

Some investors have pushed financials aside in recent years for fear of slowing growth. I think TD has the asset mix to take growth to the next level. TD has also made investments in technologies such as artificial intelligence (AI) to improve assets returns over time.

I think the pace of technological improvement on operational efficiencies is only going to pick up. This global pandemic has forced banks to change how they utilize technology. The good thing for TD investors is this company is one of the best Canadian banks in having already integrated a range of technologies into the mix prior to the pandemic. This is bullish for the continuation of TD’s long-term growth thesis over the next few decades.

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Cost efficiencies start with real estate

TD has been streamlining for years, cutting unnecessary costs and growing revenues over time impressively. I think these cost-cutting trends are only going to pick up over the long term. Reducing real estate costs is one of the key ways I think the company could accomplish this.

The coronavirus pandemic has shifted the view of brick-and-mortar assets and how these are utilized in conjunction with technology. With the shift to online banking necessitating cost reductions over time, TD will be able to generate outsized returns with a lower-cost footprint.

This could mean a reduction in the number of physical locations. This could also mean a reduction in square footage of certain locations. Work-from-home policies may reduce the amount of office space needed for head office employees. Investment advisors may hit the road or visit with clients online instead of in a physical setting long term. Regulations related to “wet ink” requirements for certain documents may eventually be replaced with e-signatures.

Bottom line

TD’s valuation, dividend yield, and other metrics signal to the market the safety this bank provides investors. I think TD is not only one of the safest dividend options on the TSX today, but one of the best long-term growth options as well. Technological enhancements could continue this historical outperformance over the long term. At these levels, TD looks like a solid buy and hold opportunity. Adding more TD exposure over time in a dollar-cost averaging manner is a winning long-term strategy, in my view.

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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 Chris MacDonald has no position in any of the stocks mentioned.

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