Why TD Bank Might Be the Dividend Play of the Decade

TD Bank (TSX:TD) stock stands out as one of my top dividend picks for the extremely long term.

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As an investor looking to build wealth over the long run, you should be actively seeking out shares of well-run companies that stand to do incredibly well over time. Think about companies you’d expect will be in far better shape in 10, 15, or even 30 years from now.

Indeed, the powers of compounding over the extremely long term are quite profound. And in this piece, we’ll look at one of the steadiest dividend stocks that I think continues to trade at discounted multiples.

TD Bank stock: A top contender for the next 10 years?

TD Bank (TSX:TD) stock isn’t just another member of Canada’s Big Six banking cohort. The bank, run by Chief Executive Officer Bharat Masrani, is quite prudent with every decision it makes.

From walking away from the First Horizons deal earlier this year (a tough call, but likely the right one) amid carnage in the U.S. regional banks to helping the bank navigate horrific pandemic conditions, TD stands out as a bank that can make it through the worst sorts of economic environments. And, of course, the most horrific black swans and curve balls that the market can throw its way. This kind of resilience is worth a premium price of admission, at least in my humble opinion.

After slogging through another headwind-filled year, shares of TD continue to trade in the $80-85 range. Indeed, the stock has been stuck in the range it fell into earlier this year. And though it could stay range-bound going into the new year, as loan-loss provisions become the talk of the town for all the big banks, I think shares are already priced with the worst in mind.

TD Bank’s option to acquire is a source of strength

Additionally, I think many investors may be at risk of undervaluing the company’s incredible liquidity position. It doesn’t matter that TD isn’t close to making another tuck-in deal. What matters is that it has the ability to pick up a small regional bank (possibly in the United States) should the right circumstances arise. It’s this financial flexibility that makes me a big fan of TD and its shrewd management team.

It’s not all about the defensive when it comes to TD Bank, however. It seems to be all about finding a way to balance between risk and reward. At the end of the day, that’s the most investors could ask for!

Sure, strong balance sheets may be somewhat less enticing in a lower-rate world. But as it stands today, rates are still high. And it remains unclear if we will get a trio of rate cuts in 2024 if the economic data doesn’t come in according to plan.

As the economy normalizes, rates slip by a bit, and appetite for loans increases, I’d look for the banks to trend higher from here. Sure, net interest margins on deposits could take a slight hit as rates tumble. But as the amount of loans goes up, I think it’s a worthy tradeoff, even for the deposit-heavy banks with sizeable retail businesses.

The Foolish bottom line on TD Bank stock

With a 4.94% dividend yield (still high historically speaking), I find TD stock to be a great comeback pick for 2024 and perhaps a solid performer over the next decade. Either way, I’m ready to nibble away at any dips between now and the end of next year.

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 Joey Frenette has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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