TD Bank (TSX:TD) just reported decent financial results for the fiscal first quarter (Q1) of 2024. Investors are now wondering if TD stock is oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends.
TD stock price
Canada’s second-largest bank by market capitalization trades near $81 per share at the time of writing compared to a 12-month low of around $76. The stock was as high as $107 in early 2022 after the big post-crash rally, so there is attractive upside potential.
Investors have been cautious about the banks over the past two years as rising interest rates in the United States and Canada threaten to trigger a recession. TD has large retail banking operations in both countries, and the impact of higher debt costs on households and commercial clients is showing up in the numbers.
TD set aside $1 billion for potential bad loans in the most recent quarter compared to $690 million in Q1 2023. This sounds like a big number, and the provisions for credit losses (PCL) are going in the wrong direction, but the amount is very small relative to the size of the overall loan portfolio, which remains in good shape.
Adjusted net income for the three months came in at $3.64 billion. That’s down from $4.15 billion in the same period last year in part due to the higher PCL.
TD has a strong capital position to ride out any additional turbulence in the market. The common equity tier-one (CET1) ratio was 13.9% at the end of Q1. This is well above the 11.5% required by regulators. TD has excess cash on hand after ending its planned purchase of an American regional bank last year. TD now intends to grow the U.S. retail business organically over the next few years.
Dividends
TD has a great track record of dividend growth. The company raised the payout late last year, and investors should see another increase in 2024. At the current share price, the stock provides a 5% yield. That’s a decent return from one of Canada’s largest companies.
Should you buy TD stock now?
Inflation is coming down in Canada and the United States, but it still isn’t back to the 2% target. The central banks likely won’t begin to trim rates until they are convinced they have inflation completely under control. Until there is a signal that rates will definitely start to decline, more volatility should be expected.
However, buying TD stock on big pullbacks has historically proven to be a profitable move for patient investors. If you have some cash to put to work, TD deserves to be on your radar today. At the current dividend yield, investors get paid well to wait for the recovery.
