The Big Six Banks have always been thought of as some of the safest investments on the TSX today. And that’s been true in the past for Toronto Dominion Bank (TSX: TD), the second-largest of the banks by market cap.
Yet, a few red flags have come up for investors in the last few months. The question is, does that mean now is the time to buy for a great long-term deal? Or avoid at all costs?
Sell
First off, let’s go with the sell angle. TD stock has been under a lot of scrutiny lately, especially for its money laundering scandal. TD Bank is facing significant regulatory scrutiny and investigations both in the United States and Canada related to anti-money laundering controls.
The bank has already taken a provision of US$450 million in relation to one of the U.S. regulatory probes, and analysts suggest that financial penalties in the U.S. could exceed US$2 billion. The allegations include failing to report money laundering related to the trafficking of illegal drugs, particularly fentanyl.
What’s more, TD stock has been fined nearly $9.2 million for non-compliance with Canada’s anti-money laundering regulations. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) found that the bank failed to submit suspicious transaction reports, indicating lapses in its compliance procedures. And there are still risks of the company incurring even more penalties.
Hold
All of these issues however could mean that investors may just want to hold the stock rather than sell it. After all, Canadian banks, including TD, are traditionally considered blue-chip stocks and are often perceived as safe investments. Despite the current regulatory troubles, TD stock remains a strong and well-established institution in the Canadian banking sector.
Looking at its valuation is another reason to consider at least holding on to the stock for now. TD Bank’s stock is trading at a historically low price-to-book multiple and offers a high dividend yield, making it potentially attractive for long-term investors. However, given the uncertainty surrounding the regulatory situation, investors may opt to hold off on buying additional shares until there is more clarity on the outcome of the investigations and any potential penalties.
So even though shares have shrunk downwards, perhaps there is enough reason to continue holding. Especially if you want dividends and long-term rewards.
Buy
As mentioned, there are multiple reasons to continue holding the stock. Despite the regulatory issues, TD stock is trading at a historically low price-to-book multiple of 1.3, indicating that it’s relatively cheap compared to its historical averages. Additionally, the bank is offering a high dividend yield of 5.23%, which is above its 25-year average of 3.4%.
And let’s be honest, TD stock has gone through tough times before. Canadian banks, including TD, are typically considered blue-chip stocks and are often seen as safe investments. However, scandals like this are rare in the Canadian banking sector.
The current situation then could lead investors to consider TD stock an opportunity to buy at a historic discount. Whenever a Canadian bank faces challenges like this, it creates a buying opportunity for investors. In fact, the potential inability of TD stock to grow in the U.S. due to regulatory constraints might result in the bank returning capital to shareholders through share buybacks and higher dividends.
The choice, as always, is yours. But with a 5.23% dividend yield and a cheap share price, it could be worth at least holding this stock for now.
