Should You Buy TD Bank Stock While it’s Below $76?

TD Bank stock dips below $76! With a 5.6% yield and robust growth prospects, is this the buy opportunity contrarian investors crave?

| More on:
a person looks out a window into a cityscape

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Contrarian investors often seize opportunities during moments of market uncertainty, and Toronto-Dominion Bank (TSX:TD), or TD Bank stock, presents such a moment. Trading below $76 and near a fresh 52-week low, TD Bank’s valuation offers a compelling case as the second-largest Canadian bank navigates temporary challenges.

With its single-digit forward price-to-earnings (P/E) multiple making it one of the most affordable Canadian bank stocks, could this be the right time to buy the dip on TD Bank stock?

Created with Highcharts 11.4.3Toronto-Dominion Bank PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

What went wrong?

Toronto-Dominion Bank’s recent quarterly earnings results brought unwelcome surprises, including the withdrawal of its medium-term financial targets for 2025. Management cited significant uncertainty during a transitional year, further dampening investor confidence.

The withdrawn guidance initially projected adjusted earnings per share (EPS) growth of 7-10%, a return on equity above 16%, and positive operating leverage. However, priorities have shifted, with the bank focusing on strengthening its anti-money laundering (AML) compliance and enhancing operational efficiency.

While this pivot creates short-term uncertainty, it also signals a prudent approach to navigating corporate challenges and positioning for long-term success.

4 Reasons to buy the dip on TD Bank stock

A generous dividend yield

TD Bank stock’s dividend yield of 5.6% is not only the highest among Canadian big banks but also signals management’s confidence in the bank’s future earnings-generating power. Even amid current headwinds, TD increased its quarterly dividend this month by 2.9% to $1.05 per share starting with the January 2025 payout.

With a payout ratio of just 54% based on expected 2025 normalized earnings per share of $7.83, the dividend remains both robust and sustainable.

Solid capital position

The bank’s capacity to absorb unexpected earnings shocks remains strong. TD Bank’s common equity tier-one (CET1) ratio of 13.1% ensures a substantial buffer to absorb potential losses. This financial strength bolsters investor confidence in the bank’s ability to weather challenges.

Growth opportunities in core segments

Despite U.S. banking setbacks, TD’s Canadian personal and commercial banking division continues to deliver strong results, with most recent quarterly revenue up 7% and earnings up 9% year over year. Stable loan and deposit growth positions the segment as a reliable earnings generator.

Moreover, wealth management and wholesale banking operations remain robust. TD Asset Management led Canadian banks in the exchange-traded funds (ETF) market share growth in 2024, a trend likely to persist. Wholesale banking also posted impressive results, with revenue up 19% and earnings surging over 1,200%, driven by higher investment banking fees.

TD Bank stock’s valuation advantage

TD Bank stock’s forward P/E ratio of approximately nine positions it as a bargain compared to peers. For investors seeking exposure to a top-tier North American bank with a $2.1 trillion asset base, TD offers a rare value opportunity today as shares exchange hands at quotes below $76 a share.

Risks to watch

TD Bank’s U.S. operations remain a concern. Normalized net earnings in the U.S. banking division fell 14% year-over-year in the fourth quarter, driven by higher provisions for credit losses and rising operating costs tied to AML compliance. These challenges, coupled with an asset cap, may limit earnings growth until at least 2028 or beyond.

Additionally, a softening economic outlook for Canadian banks, with rising delinquencies and competitive deposit markets, may potentially pressure earnings margins.

Investor takeaway: Buy TD Bank stock below $76?

TD Bank stock offers a compelling combination of dividend yield, valuation, and long-term growth potential. While near-term uncertainty persists, particularly in its U.S. operations, TD’s strong capital position and resilience in core Canadian banking operations may suggest a brighter future.

Investors with a contrarian mindset may find TD’s current depressed price an attractive entry point, with the potential for meaningful upside as the bank navigates its transition and updates its strategy in 2025.

Should you invest $1,000 in Brookfield Asset Management right now?

Before you buy stock in Brookfield Asset Management, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Asset Management wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Bank Stocks

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold in 2025?

Royal Bank is down 6% in 2025. Is it time to buy the dip?

Read more »

chart reflected in eyeglass lenses
Stocks for Beginners

Seize the Dip: Investment Opportunities Await This April

If you're looking for one and only one opportunity during a market dip, buy this top stock.

Read more »

hand stacks coins
Bank Stocks

Here’s How Many Shares of IGM Financial You Should Own to Get $1,000 in Yearly Dividends

Besides its attractive dividend income, IGM Financial’s strong long-term growth fundamentals could help its stock outperform the broader market in…

Read more »

A person looks at data on a screen
Bank Stocks

Where Will Bank of Montreal Stock Be in 5 Years?

These factors give Bank of Montreal (TSX:BMO) stock the potential to outperform the broader market in the next five years.

Read more »

calculate and analyze stock
Bank Stocks

Where Will TD Stock Be in 3 Years?

Here are some key reasons why I expect TD stock to reward patient investors handsomely over the next three years.

Read more »

Pile of Canadian dollar bills in various denominations
Bank Stocks

1 Dividend Stock Down 10.2% to Buy Now for Lifetime Income

A high-yield stock with a nearly 200-year dividend track record is a screaming buy right now.

Read more »

calculate and analyze stock
Bank Stocks

Why Smart Investors Own Canadian Financial Stocks

Top Canadian stocks like these could help smart investors get strong returns on their investments in the long run.

Read more »

customer uses bank ATM
Tech Stocks

2 Canadian Bank Stocks to Shield Against Market Downturns

Anchor your portfolio with dividends and stability built to outlast trade war turbulence with Royal Bank of Canada (RBC) and…

Read more »