The broader TSX Index is in a pretty strange spot right now, now off just over 4% from all-time highs hit just a few weeks ago. Meanwhile, the U.S. stock markets are blasting off, and they really don’t seem to be looking back, with tech in the driver’s seat. I have no idea if the run will continue at this pace into year’s end or if we’re going to be in for a nasty pullback come the summer or autumn.
Regardless, Canadian investors can’t help but wonder if the TSX Index, which is heavy in financials, materials, and energy, will be able to keep up from here. If not, perhaps many investors are wondering if it’s better to swap the loonies for greenbacks so that they can buy the U.S. AI stocks, even as they go parabolic to new heights.
Value and underrated growth on the TSX
In this piece, we’ll focus more on dividend (yield) and value versus just sheer momentum. Perhaps a bout of wild volatility is needed for investors to shift back into value mode. When they do, I believe that the dividend plays and neglected value bargains could be next to catch a bid higher.
Without further ado, let’s check out a 5.5% dividend yielder that looks incredibly undervalued as it continues falling to depths not seen in many years. Undoubtedly, sometimes, the market can’t efficiently price stocks. When he punishes unloved names, there may be deep value to be had by new investors who are willing to bite their lip and brace for near-term losses.
TD: Banking on a bargain with a 5.5% yield
TD Bank (TSX: TD) is the 5.5% yielder that I view as getting absurdly undervalued while it’s more than 30% off its short-lived early 2022 highs of $106 and change. Undoubtedly, TD Bank has nobody to blame for its woes but itself, with the money-laundering aftermath weighing heavily on investor sentiment. Only time will tell just how much TD will need to pay (could it be $3-4 billion?) and what regulators will want before they allow TD to really grow in the U.S. again.
The money-laundering woes are nothing to overlook, but for a $130 billion behemoth like TD, it’s not as detrimental as you’d think. Of course, expansion in the U.S. market could be impaired for some time, but if you’re willing to own for the next 10-15 years, I think there’s a lot of reason to consider the name while it’s yielding 5.5%.
Of course, the U.S. market was critical to TD’s medium-term growth. But there are other growth levers management can pull in the meantime, all while it seeks a new chief executive officer. Simply put, the TD of the future will probably be a heck of a lot better and growthier than the TD of today.
If TD is blocked from further U.S. deals, the bank can always buy domestically, buy back some shares, grant a special dividend, or double down on AI and digitization efforts.
Recently, TD launched a new unit for tech banking, one that could mark the start of a huge push toward becoming more competitive with fintech disruptors. TD has plenty of cash and many options for deploying it to bolster its growth profile.
