TD Bank Stock (TSX:TD): A Top Bank Stock to Buy Now

TD Bank stock and Royal Bank are the two highest quality Canadian banks stocks to buy now – and they provide generous dividend yields.

| More on:
hand using ATM

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canadian bank stocks like TD Bank stock seem to come out of every crisis as examples of success stories. And this pandemic crisis appears to be no different. Canadian banks have fared well so far despite ratcheting up their provisions for loan losses last year. Their diversification and financial strength has saved the day once again.

Without further ado, here are the two top Canadian bank stocks to buy now.

Consistent top performance on efficiency

Currently yielding 3.8%, Toronto-Dominion Bank (TSX:TD)(NYSE:TD), is a top bank stock. For example, it’s one of the two largest Canadian banks. It’s also the fifth largest North American bank. Furthermore, TD Bank continues to stand out for its success in driving efficiencies. The bank has an industry-leading ROE. And it has a conservative approach that mitigates risk. For example, TD Bank adheres to strict controls with regard to lending practices. This pays off big, especially in the bad times. And these are bad times.

TD Bank’s resiliency is clear. 2020 earnings fell dramatically relative to 2019. But the overall impact of this disastrous year was not as bad as one would think it would be. TD’s liquidity remained strong. And its capital ratios remained exemplary. These are the key measures of a bank’s resiliency. TD gets top grades on both of these measures. The graph below shows the dip and recovery that TD Bank stock has endured this past year.

TD Bank stock price Canadian bank stock

So back to the dividend, another reason to own TD Bank stock. Investors like you and I can always benefit from a dependable dividend-payer. And TD Bank is just that. Since 1995, TD Bank has delivered an 11% annualized dividend growth rate. This dividend growth history shows no signs of stopping.

TD Bank will be reporting its next quarterly result at the end of May. Canada is in the midst of the third wave of the virus. This will likely create another period of high uncertainty and rising loan loss provisions.

A dominant position

Royal Bank of Canada (TSX:RY)(NYSE:RY) is Canada’s largest bank, with a market capitalization of $119 billion. The stock has more than recovered from March 2020 lows, and it’s been an incredible ride. The graph below illustrates this.

Royal Bank stock Canadian bank stock

This strong recovery is well justified as this Canadian bank enjoys leading operating efficiency and a dominant market share in many segments. Today, Royal Bank stock is yielding 3.74% and it remains well capitalized. It’s a bank stock of the highest quality.

Royal Bank will also report its next quarterly result In May. We should watch closely to see how the bank handles the effect of this third wave of the virus.

What’s ahead for Canadian banks like TD Bank?

Looking ahead, Canadian banks may be headed for some trouble as the third wave of the virus has hit us hard. Lock downs will once again take their toll. But even more significant is the risk of inflation. The massive amount of stimulus that has been pumped into the economy recently is unprecedented. This will likely cause inflation to rear its ugly head. And as we know, inflation is not good for banks. It will cause interest rates to rise, which will slow the economy, which can potentially weaken the banking business.

So what’s to come in 2021? Well, Royal Bank management had a very cautious tone on their latest earnings call. They are overweighting their most pessimistic scenarios for 2021. And they are expecting pain. TD Bank has also been cautious, recognizing the perilous environment.

The fact is that there are many struggling areas of the economy. And this third wave will just accentuate their problems. Also, government programs will end one day. Was all the damage simply delayed until another day? Will the mitigation only serve to delay the inevitable? This remains unclear.

The bottom line

Canadian banks are famous for their resiliency and for their financial strength. TD Bank stock is certainly a leader. As is Royal Bank stock. Although a difficult period may be ahead of us, I think that buying these bank stocks now is a good move.

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 Karen Thomas owns shares of TORONTO-DOMINION BANK.

More on Bank Stocks

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »

work from home
Bank Stocks

Where Should Canadians Invest $500 Right Now? How About the “Best Bank for Your Buck?”

TD Bank (TSX:TD)(NYSE:TD) stock is a Dividend Aristocrat that looks too cheap to ignore as rates surge.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Growth from coins
Dividend Stocks

What’s More Effective: 1 Growth Stock or 1 Dividend Stock for High Returns?

Let's settle the age old debate. If you had invested in a huge growth stock or a solid dividend stock,…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Why I Prefer Banks to Oil Stocks for 2022’s 2nd Half

Right now, I like bank stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) more than oil stocks.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Stocks for Beginners

2 Big Bank Stocks to Own for Lifelong Income

These two Big Bank stocks are ideal staple holdings for newbie investors seeking a lifetime of passive income.

Read more »

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

Happy Retirement” on a road
Bank Stocks

Got $10? You Can Still Reach Riches for Retirement

You could have six figures by retirement by simply choosing a strong, safe stock that's down and putting aside $10…

Read more »