TD Bank (TSX:TD) Stock Smashes All-Time Highs: More to Come?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock recently set an all-time high. Are there more gains to come?

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) stock recently set an all-time high, reaching $79.54 on Friday. It closed the day just three cents shy of the record high price at $79.51. It’s been an incredible run. Just a year ago, TD stock slid as low as $53. Since then, it has risen 50%.

The question is, why? With COVID-19 risk factors still very much real, it’s quite possible for TD to swing a miss in the year ahead. The pandemic increased the risk of defaults, which forced banks to increase their loan-loss reserves. That sent earnings lower at the time, and it could happen again in a new wave of COVID. However, as you’re about to see, TD Bank is in a great position — especially when it comes to its U.S. operations.

Strong growth in two most recent quarters

In its two most recent quarters, TD Bank posted solid growth. The earnings measures for Q4 were as follows:

  • GAAP earnings: up 80%
  • Adjusted earnings: up 1%

For Q1, they were as follows:

  • GAAP earnings: up 10%
  • Adjusted earnings: up 10%

Both were solid quarters. In the case of Q4, the bank got a one-time $2.5 billion windfall from selling TD Ameritrade to Charles Schwab (NYSE:SCHW). That’s a non-recurring gain, hence the discrepancy between GAAP and adjusted earnings in that quarter. In the first quarter, we saw earnings rise across the business due to the economic recovery and solid fundamentals.

A lucrative partnership with Charles Schwab

A big factor contributing to TD’s solid Q1 earnings was its partnership with Charles Schwab. As a result of the deal closed in Q4, TD now owns 13.4% of Schwab. That makes it a partner in the world’s largest brokerage. In Q1, Schwab contributed $209 million in earnings to TD Bank compared to the $201 million TD Ameritrade contributed in the quarter a year before. So, the Schwab deal is paying off.

Rising U.S. yields

Another factor TD has going for it is rising treasury yields in the United States. Generally speaking, mortgage rates tend to follow moves in the 10-year treasury. Central banks like the Federal Reserve are currently trying to keep interest rates low, but bond vigilantes are pushing the yields higher. This is generally good for a bank’s mortgage operations, which earn more money when interest rates are high. Of course, the Federal Reserve’s official policy is for interest rates to be low, and it has more tools at its disposal to lower yields (i.e., buying up treasuries). Still, it must be said that the current trends in the U.S. treasury are good for banks for the time being.

Foolish takeaway

Over the years, TD has proven itself to be one of Canada’s best-performing banks, with a solid U.S. retail business and impressive brokerage operations. In 2021, that continues to be the case. With earnings rising and COVID-19 beginning to run its course, things are looking up for Canada’s second-largest bank.

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. The Motley Fool recommends Charles Schwab.

More on Dividend Stocks

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

Down by 26.77%: Now Might Be the Perfect Time to Buy Nutrien Stock

This TSX stock has seen share prices fall by over 26% from its 52-week highs, but it might be the…

Read more »

Woman has an idea
Dividend Stocks

2 No-Brainer Stocks to Buy Now With $7,000

Two relatively cheap cash cows are no-brainer buys for investors with $7,000 to invest.

Read more »

dividends grow over time
Dividend Stocks

Buy This High-Yield Dividend Stock in July 2024

Buy this high-yielding dividend stock to lock in inflated yield into your portfolio to generate solid passive income for years.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Where Will Dollarama Stock Be in 3 Years?

Dollarama stock has done incredibly well during economic uncertainty, but what about when the markets recover in the next three…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA – 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Canadian stocks like Brookfield Corp (TSX:BN) can make wise TFSA holdings.

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

3 Things You Need to Know if You Buy NorthWest REIT Today

This REIT holds a super high dividend yield at 7.2%, but before you invest here is exactly what investors need…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With $10,000

High-yield dividend stocks can turn a $10K investment in a TFSA into a gold mine over time.

Read more »

money cash dividends
Dividend Stocks

Buy 6,250 Shares of This Top Dividend Stock for $250/Month in Passive Income

Beyond its reliable monthly passive-income streams, iShares Canadian Financial Monthly Income ETF (TSX:FIE) is on course to double investors' capital

Read more »