Defensive investing is not necessarily just for retirees. However, those approaching or in retirement certainly may want to be more cautious with respect to where they invest. Permanent capital loss is something that should be avoided by all investors, especially as uncertainty picks up in the market.
For those looking for a solid mix of dividend income, growth, and stability, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is an excellent choice. Here’s why I think TD stock could provide the kind of defensive growth retirees ought to consider right now.
TD stock built on top of solid fundamentals
Most investors may already be aware of just how large TD Bank is, relative to its peers. This is Canada’s second-largest bank — a testament to TD’s growth in its core domestic market. However, TD is also on the verge of becoming the sixth-largest bank in the U.S. as well, thanks to a recent acquisition. This is something many investors may not be aware of.
TD’s size has allowed this lender to provide returns on shareholder equity its peers may envy. Right now, TD shareholders get a 16% return on their equity. Additionally, TD has grown its earnings per share by approximately 8% over the past decade. Those are some strong fundamentals for a major bank.
These fundamentals have allowed TD to provide a rather impressive (and growing) dividend yield of 3.6% at the time of writing. I expect continued dividend growth to provide excellent passive income to those looking for such an option for their retirement spending.
TD shows strong dividend growth
Sticking on this topic of dividend growth, TD stock really is a winner. The company’s current dividend yield may fall short of where other top Canadian stocks like. However, unlike many of its peers, TD has seen impressive dividend growth over time.
TD Bank has increased its dividend five times over the past five years. On average, these dividend hikes come in at around 8.4%. Accordingly, every nine years or so, TD’s dividend distribution doubles, assuming this growth rate approximates the long-term growth rate the company will continue to hike its dividend at.
It should be noted that future dividend growth will depend on the company’s payout ratio and earnings growth. That said, the company’s payout ratio is currently reasonable, suggesting there is more room to run over the long term.
Bottom line
TD stock is one I think all investors could consider at these levels. Sure, there are significant risks that ought to be priced into financials right now. However, those aiming for a defensive tilt may do well to hold TD over the long term. Historically, this has been the case. I think this will continue to be the case for some time.
