One of the Canadian bank stocks that’s been in the news quite a bit of late is Toronto-Dominion Bank (TSX:TD). Canada’s second-largest bank, TD stock has been hit by short-sellers, many of whom suggest TD could be the most exposed to a potential housing downturn domestically.
Of all Canadian banks, TD has the highest short interest right now. Thus, questions of whether this stock is worth owning on this dip are worth considering.
After all, TD stock has dipped from a high of nearly $95 per share this year to less than $80 per share at the time of writing. That’s a relatively meaningful discount, particularly for this dividend stock that provides a yield of 4.8%.
Here’s why I still think TD stock is a buy here.
TD stock continues to provide strong total-return potential
Approximately one-half of the total return discussion when it comes to dividend-paying stocks is attributable to a given stock’s dividend yield. Thus, when considering TD stock, it’s important to home in on the company’s distribution.
TD Bank recently declared its quarterly dividend of $0.96 per share in early March. This will be distributed to shareholders on record, as of Apr. 6, 2023.
For those with a long-term investing time horizon, TD has been among the most consistent banks in terms of delivering a strong dividend yield and capital appreciation over decades. With the bank’s growth profile focused on the U.S., TD has also limited its exposure to demographic concerns. Thus, while TD’s domestic exposure is high (like all Canadian banks), there are other growth drivers that should allow TD stock to continue to appreciate.
This is one of the best total-return stocks on the TSX from a historical perspective. Accordingly, I don’t expect this dynamic to change anytime soon.
Bottom line
Many of the concerns around TD stock right now centre on the bank’s Canadian mortgage and commercial lending businesses. Of course, TD is a big player in these markets, and its exposure in these segments have delivered strong growth in the past.
But with rising interest rates, there are concerns. These shouldn’t be overlooked. Like it or not, short-sellers often provide the market with an alternative view that’s worth exploring. I’m not saying this is a stock without risk, but just posing the question of whether these risks are priced in.
At current levels, I think the answer is yes.
