TSX bank stocks, including Toronto-Dominion Bank (TSX:TD), have trailed the broader markets in the last two years. Investors and analysts are concerned that rising interest rates, inflation, and a sluggish macro economy would result in higher loan defaults across verticals. Additionally, higher interest rates generally translate to a tepid lending environment, resulting in lower earnings for bank stocks.
TD Bank stock offers you a tasty yield of 5.1%
Down 25% from all-time highs, Toronto-Dominion Bank offers an attractive forward dividend yield of 5.1%, making it a top investment choice for income-seeking investors.
TD Bank continues to expand its product offering, allowing the financial heavyweight to report record revenue and net income in the Canadian Personal and Commercial Banking segment. For example, its net income in this segment grew by 13% year over year to $1.87 billion in the fiscal third quarter (Q3) of 2024 (ended in July).
However, the company reported a net loss of $181 million as it allocated a whopping US$2.6 billion in provisions for investigations and potential fines related to anti-money laundering activities. If we adjust for the one-time expense, TD Bank’s net income in fiscal Q3 is $11.07 billion, down from $11.5 billion last year.
Priced at 10 times forward earnings, TD Bank stock might seem cheap and trades at a 6% discount to consensus price target estimates. However, here’s another TSX dividend giant that should outpace TD Bank stock in 2024 and beyond.
The bull case for Enbridge stock
Given that Enbridge (TSX:ENB) pays shareholders an annual dividend of $3.66 per share, it offers a dividend yield of almost 7%. Although Enbridge is part of the cyclical oil and gas sector, it generates stable cash flows across business cycles, enabling it to raise dividends by a compound annual growth rate of 10% since 1995.
Enbridge has an expanding base of cash-generating assets and operates oil and natural gas pipelines, storage facilities, and clean energy projects that generate stable earnings. Most of Enbridge’s cash flows are tied to long-term inflation-linked contracts, making the Canadian energy stock relatively immune to volatile fluctuations in commodity prices.
Moreover, Enbridge enjoys a wide competitive moat as it transports a third of the crude oil produced in North America and a fifth of the natural gas consumed in the U.S.
Enbridge ended 2023 with a distributable cash flow of $11.3 billion and expects it to grow by 3% annually through 2026. So priced at eight times trailing cash flow, ENB stock is cheap given its growth estimates and high dividend yield. Additionally, its payout ratio of less than 70% allows the TSX giant to reinvest in acquisitions, lower balance sheet debt, and raise dividends further.
Enbridge’s growth story is far from over. It has close to $18 billion of secured capital projects in its backlog. These include natural gas expansion projects, clean energy projects, a liquefied natural gas terminal, and oil storage and export capacity.
ENB stock has already returned significant wealth to shareholders. For example, a $1,000 investment in ENB 20 years back would be worth over $10,000 after adjusting for dividend reinvestments.
