Bank stocks have long been the backbone of a well-rounded portfolio for investors seeking a mix of stability, dividends, and potential long-term growth. Over the next decade, this sector could continue to shine, driven by technological advancements, economic growth, and reliable financial performance.
Canadian banks, in particular, have a strong reputation for resilience during economic downturns, with robust regulatory frameworks that ensure stability. This strength makes banks like Toronto-Dominion Bank (TSX:TD) especially attractive for investors looking to capitalize on current market opportunities, particularly for long-term investors at these prices.
TD stock
Now let’s zoom in on TD stock specifically, as it’s a standout in the Canadian banking sector and currently trading below its highs, presenting a strong case for a long-term buy. TD stock, Canada’s second-largest bank by market capitalization, has an enviable presence in both Canada and the United States. Its dual-market exposure provides a unique growth opportunity, as it can tap into the U.S. economy’s dynamism while maintaining a solid foundation in Canada’s stable financial system. Despite recent challenges, TD continues to demonstrate its ability to weather adversity while positioning itself for future growth.
TD’s fourth-quarter 2024 earnings underscore this resilience. The bank reported earnings of $3.6 billion, reflecting impressive 26.8% year-over-year growth. However, adjusted earnings showed an 8% decline to $3.2 billion, primarily due to legal settlements and elevated provisions for credit losses. This mixed result has caused TD to dip, offering an entry point for long-term investors. A significant $3.1 billion fine related to anti-money laundering compliance in its U.S. operations weighed on TD stock’s performance. While such penalties can shake investor confidence in the short term, TD stock has taken decisive steps to enhance its risk management framework, ensuring that similar issues are unlikely to recur.
More to come
Beyond the headlines, TD stock’s fundamentals remain solid. It boasts a strong return on equity (ROE) of 7.3%, a key measure of profitability, and a healthy profit margin of 15.7%. Its dividend yield of 5.1% at writing makes it particularly appealing for income-focused investors, thus offering a steady return while waiting for the stock to appreciate. Historically, TD stock has a track record of increasing dividends, reflecting both its financial health and shareholder-friendly policies. Over the past five years, TD stock’s average dividend yield has been 4.3%, highlighting its reliability as a passive income generator.
What sets TD stock apart from its peers is its strategic expansion in the United States. While many Canadian banks focus predominantly on domestic markets, TD stock leveraged its U.S. operations to drive growth. Its acquisition of several U.S. regional banks has cemented its foothold south of the border, allowing it to capitalize on one of the world’s largest economies. With the U.S. economy expected to remain robust over the next decade, TD stock’s cross-border presence positions it well to benefit from rising demand for loans, mortgages, and financial services.
Now offering value
TD stock trades at a forward price/earnings (P/E) ratio of 9.6 at writing – well below historical averages and offering a significant discount compared to its peers. This valuation suggests that the market may be underpricing TD stock’s long-term growth potential, thus making it a bargain for investors with a patient outlook.
TD’s long-term success hinges on its ability to adapt to changing consumer behaviours and market conditions. Its investments in digital banking, strong cross-border strategy, and focus on risk management provide a clear roadmap for future growth. Investors who buy TD stock today are not just getting a piece of one of Canada’s most reputable banks. They are investing in a forward-thinking financial giant with the tools to thrive in an evolving economy. The current dip, driven by short-term challenges, presents a rare opportunity to acquire a blue-chip stock at a discount.
Bottom line
Bank stocks like TD stock remain a cornerstone for long-term investors. With strong dividends, a clear growth strategy, and an undervalued price, TD stock could very well be one of the best investments of the next decade. As Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful.” The market’s current caution around TD stock might just be the signal to lean in, hold steady, and watch the rewards unfold over the long haul.
