Investing in the equity markets should be a long-term process for you to benefit from the power of compounding. There are several blue-chip stocks trading on the TSX that have generated significant wealth for shareholders.
For instance, a $1,000 investment in Toronto-Dominion Bank (TSX: TD) 20 years ago would be worth $4,330 today. But after adjusting for dividends, your investment would be valued at more than $9,000, easily outpacing the TSX Index. The iShares S&P/TSX 60 ETF, which tracks the TSX index, would have turned a $1,000 investment into $4,780 after including dividends since August 2003.
But past returns don’t matter much for present and future investors. Let’s see if TD Bank stock should be on your shopping list today.
Is TD stock a good investment?
Among the largest banks in North America, TD Bank is the sixth largest by total assets and the fifth largest by market cap. Despite a tepid lending environment in the last year, TD Bank’s personal and commercial banking business increased net income by 4% to $1.62 billion in the fiscal second quarter (Q2) of 2023 (ended in April) while sales were up 11% at $4.4 billion due to higher margins and volume growth.
This segment enjoyed increased customer activity and momentum in mortgage originations as well as strong credit card loan growth.
The banking collapses south of the border continue to act as a tailwind for big banks, including TD, as its U.S. Retail bank division saw adjusted net income rise by 28% year over year to $1.52 billion. Its investment in Charles Schwab contributed $250 million in earnings, up 12% year over year.
The U.S. Retail Bank segment delivered strong loan growth of 10% as personal loans were up 12% and business loans grew 9% compared to the year-ago period.
Its strong results were offset by weak performance in the Wealth Management and Insurance business, which saw a 16% decline in net income. Moreover, as IPO (initial public offering) activity and mergers and acquisitions came to a standstill, TD’s wholesale banking saw net income decline by $209 million, or 58%, year over year to $150 million.
TD Bank is a top TSX stock in 2023
Down 23% from all-time highs, TD Bank stock is valued at a market cap of $153 billion. It ended fiscal Q2 with $1.92 trillion and total deposits of $1.18 trillion. In the last four quarters, its adjusted net income was $15.8 billion, indicating TD Bank stock trades at less than 10 times trailing earnings, which is quite cheap given a dividend yield of 4.6%.
While TD Bank is part of a cyclical sector, its strong financials have allowed the company to increase dividends by 9.4% annually in the last 20 years.
It also ended Q2 with a CET1 (common equity tier-one) capital ratio of 15.3%, which is the second highest among TSX banks. The CET1 ratio indicates a bank’s ability to withstand an economic downturn, and a higher ratio is favourable.
Its diversified business model, wide economic moat, and robust financials make TD Bank stock a top investment choice today. TD stock also trades at a discount of 10% to consensus price target estimates.
