Toronto-Dominion Bank (TSX:TD) looks like a Canadian bargain that investors haven’t seen in years. And if you’ve been waiting to scoop up this financial giant at a discount, now may be the time. With its share price hovering around $75 at writing, not far off its 52-week low of $73.22, this is a rare window to buy a blue-chip stock with a strong dividend yield and a proven track record of stability.
The current price reflects a significant dip from its 52-week high of $87.99, and for long-term investors, that’s where the opportunity lies. While recent turbulence, particularly in its U.S. operations, has made headlines, TD stock’s future outlook and dividend strength still make it one of Canada’s most reliable stocks.
Into earnings
The fourth-quarter (Q4) earnings report for 2024 shed light on both the bank’s strengths and challenges. TD stock reported $3.6 billion in earnings, marking a 26.8% increase compared to last year’s Q4. On the surface, that sounds like stellar growth. Yet adjusted earnings fell 8.0%, signalling that underlying challenges, including regulatory penalties in the U.S., are taking a toll.
TD stock’s U.S. segment saw a sharp 32% decline in net income, primarily due to penalties tied to anti-money laundering failures. This was a blow to TD stock’s ambitious growth plans in the U.S., as regulators have imposed an asset cap — essentially limiting its ability to expand south of the border until issues are resolved.
To put it plainly, TD stock is in recovery mode in the United States. This has dragged down investor sentiment. Over the past few years, TD stock has been aggressively growing its U.S. operations, positioning itself as a strong North American financial player. However, the penalties, which amount to over US$3 billion, forced TD to recalibrate. The silver lining? TD stock’s Canadian operations remain rock-solid. Its diversified model, spanning retail banking, wealth management, insurance, and wholesale banking, continues to deliver steady revenue and profitability. In fact, TD stock’s profit margin remains a healthy 15.72%, with return on equity (ROE) at 7.33%.
Considerations
TD stock’s past performance speaks volumes about its resilience. Over the past five years, TD stock has delivered a 26.44% return. Not the highest in the market, but a testament to its stability in the face of economic challenges. While its performance lags behind the S&P 500, which has surged nearly 90% over the same period, TD stock is a different kind of investment. This is a stock for patient investors who prioritize steady dividends and a proven track record over high-risk, high-reward plays.
Speaking of dividends, TD stock offers an impressive 5.12% yield at writing, with an annual payout of $4.08 per share. At today’s share price, that’s an income stream worth considering, especially for those looking to pad their portfolios with passive income.
For investors concerned about the valuation, TD stock looks attractively priced at these levels. TD stock trades at a P/E ratio of 15.96, well below the valuation of many peers in the North American banking sector. Its price-to-book ratio of 1.27 also suggests the stock is undervalued relative to its assets. In other words, investors are getting a bank with a strong balance sheet, consistent revenue, and an industry-leading dividend at a bargain price. Combine that with a one-year target price of $84.36, and TD stock offers both value and growth potential.
Bottom line
In conclusion, while TD stock is navigating some rough waters, particularly in its U.S. operations, this is a bank that knows how to turn challenges into opportunities. The stock’s current price reflects investor hesitation, but for those with a long-term perspective, it’s hard to ignore the potential here. TD stock’s rock-solid Canadian foundation, attractive dividend yield, and undervalued share price make it a classic case of buying a great company when it’s on sale. As Warren Buffett famously said, “Be greedy when others are fearful.” And right now, TD Bank may just be that golden opportunity for Canadian investors.
