Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has delivered good returns over the years. Has it still got it?

| More on:
Man data analyze

Image source: Getty Images

Toronto-Dominion Bank (TSX:TD) stock has done remarkably well over the decades. Despite taking a big hit in the 2008 market crash, TD stock has delivered a 294% price return and a 602% total return in 15 years. Many top banks’ shares still have yet to recover from the beating they look back in 2008/2009, when the financial edifice of the world nearly came tumbling down. Many banks failed — TD was never even close to becoming one of them.

The question is, will TD Bank’s future be as good as its illustrious past? With a history tracing all the way back to 1855, it would certainly seem to fit the definition of a mature company. That argues for slower growth going forward. However, as you’re about to see, TD Bank still has some aces up its sleeve.

Why banks can still be good investments in 2024

One of the main arguments people use against investing in bank stocks is, “They’re too old and will be obsolete soon.” Two out of the three companies that eventually became TD Bank date back to the 1800s. So, you really have to wonder how this ancient company can still be relevant.

In business classes, we’re taught that companies go through predictable cycles of growth, maturity, and decline. This model is reasonably accurate for individual lines of business, but it needn’t be true on a whole firm level. In financials, it needn’t be the case at all. There’s an Italian bank that’s 552 years old and still a going concern!

In general, professional services companies like banks and construction contractors can stay relevant longer than manufacturers, because they don’t risk obsolescence. Banking will never go away; it will just evolve. This is one reason to think that TD Bank at least has a shot at a future as good as its recent past.

Revenue and earnings still rising

As for signs that TD’s future actually will be as good as its past, we could turn to its most recent earnings release. TD’s first-quarter release beat estimates of revenue as well as earnings per share (EPS), boasting the following metrics:

  • $13.71 in reported revenue, up 12.2%. “Reported” means calculated by Generally Accepted Accounting Principles.
  • $13.77 billion in adjusted revenue, up 5.3%. “Adjusted” means calculated by the company’s own preferred accounting methods.
  • $1.55 in reported earnings per share, up 89%.
  • $2 in adjusted earnings per share (EPS), down 12.3%.

There’s a fair amount of inconsistency between the reported and adjusted earnings figures. That’s due to a conscious choice TD made to include various restructuring charges in adjusted earnings, which lowered them compared to reported earnings this quarter but elevated them in the same quarter a year before. Basically, it was a wash.

Could there be a crisis on the horizon?

The one thing you want to be on the lookout for with banks like TD is the dreaded financial crisis. We had a big one in 2008 and another just last year. When banks get into trouble (i.e., fail), it can sometimes cause contagion that can spread to other banks. It’s very important for banks to practice sound risk management. Fortunately, TD appears to be doing so, with a 13.9% common equity tier-one ratio and excellent liquidity coverage. I’d say its dividend will still be paid without any problems five years from now. As for the stock price — we’ll just have to wait and see.

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 Andrew Button 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.

More on Bank Stocks

grow money, wealth build
Bank Stocks

TD Bank Stock Got Upgraded, and It’s a Good Time to Load Up

TD Bank (TSX:TD) stock is getting too cheap, even for analysts at the competing banks!

Read more »

data analyze research
Bank Stocks

3 Top Reasons to Buy TD Bank Stock on the Dip Today

After the recent dip, these three top reasons make TD Bank stock look even more attractive to buy today and…

Read more »

edit Woman calculating figures next to a laptop
Bank Stocks

Where Will Royal Bank of Canada Stock Be in 5 Years?

Here’s why Royal Bank stock has the potential to significantly outperform the broader market in the next five years.

Read more »

consider the options
Bank Stocks

Is RBC a Buy, Sell, or Hold?

Here’s why I think RBC stock is a great buy for long-term investors at current levels despite its dismal performance…

Read more »

edit Woman in skates works on laptop
Stocks for Beginners

1 Passive Income Stream and 1 Dividend Stock for $491.80 in 2024

Need to invest but have nothing to start with? This passive income stream and dividend stock are exactly where you…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Is BNS a Buy, Sell, or Hold?

Bank of Nova Scotia (TSX:BNS) stock looks like an intriguing high-yield bank stock to pursue this month.

Read more »

grow money, wealth build
Bank Stocks

EQB Stock Has a Real Chance of Turning $500 Into $1,000 by 2030

EQB is an undervalued dividend paying TSX bank stock that should more than double in market cap by the end…

Read more »

A plant grows from coins.
Bank Stocks

Should You Buy TD Stock for Its 5.2% Dividend Yield?

TD Bank stock trades 27% from all-time highs, offering shareholders a tasty dividend yield of 5.2%. Is TD Bank stock…

Read more »