Why TD Stock Below $80 is My Top Pick for 2025

The Toronto-Dominion Bank (TSX:TD) is both cheap and growing heading into 2025.

| More on:
dividends can compound over time

Source: Getty Images

The Toronto-Dominion Bank (TSX:TD) is one of North America’s cheapest and (on the top line at least) fastest growing bank stocks. The stock got cheap when, in 2023 and 2024, it was subjected to a US Department of Justice (DoJ) investigation into its anti-money laundering practices. The investigation ultimately found that TD allowed some of its tellers to commit money laundering, and the bank was fined $3 billion while having its US retail assets capped at $430 billion.

While the fine and asset cap that TD took last year were definitely damaging, they are now in the rearview mirror. TD has to restructure its US business in order to comply with the asset cap – it was just below the cap on its most recent quarterly report date, but bank assets tend to grow over time. So, TD may have to sell off some valuable US assets. Its lucrative Charles Schwab investment is one asset that’s considered potentially on the chopping block. So, sacrifices will have to be made.

However, the US asset cap only applies to the consumer-facing bank branches in that country. There are several other segments in TD’s business that could use funds raised by selling off US assets. There may be profitable investment opportunities in some of them, too:

  • Investment banking. TD’s US investment banking segment is not subject to the asset cap and investment banking fees are growing this year. Another IB deal like 2023’s Cowen buyout might make sense here.
  • Canadian banking. An infusion of cash would improve the Canadian retail bank‘s capital ratios, facilitating more loans.
  • Dividends and share repurchases. The most clear and obvious use of cash from the sale of US retail assets, it could drive strong returns.

Decent top-line growth

Although TD’s earnings took a hit last year due to the money laundering investigation and subsequent penalties, the bank’s top line growth (i.e., revenue growth) was actually among the strongest in its peer group. With revenue up 10% in the fourth quarter, it beat most North American mega-banks in the same period. That indicates that there is a good foundation for the bank to thrive in future periods in which the fine is not holding earnings back.

Cheapness

Last but not least, TD Bank stock is quite cheap compared to its peer group. At today’s prices it trades at 9.5 times earnings, 2.5 times sales, and 1.2 times book value. This is considerably cheaper than most of TD’s competitors, which are averaging about 15 times earnings right now. Granted, the company’s profitability metrics took a hit this year due to the fine. But that will not affect its financial statements next year.

Foolish takeaway

TD Bank has definitely given investors a wild ride over the last five years. Between investigations, fines and asset caps, there’s been a lot to grind through. These bumps in the road led to a lot of stock price volatility, which contributed to the current opportunity to buy TD below 10 times earnings. Personally, I’m quite content to be holding TD stock today.

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.

Charles Schwab is an advertising partner of Motley Fool Money. Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

Generate $500 in Tax-Free Monthly Income With This Easy Strategy

Passive-income investing is easy thanks to this fund's steady $0.10-per-share monthly payout.

Read more »

how to save money
Dividend Stocks

Got $2,000? 5 Telecom Stocks to Buy and Hold Forever

The discount and recovery potential are reasons enough to consider telecom stocks in Canada right now. The fact you can…

Read more »

Dividend Stocks

The Underperformers: Canadian Stocks That Missed the Mark in 2024

I'm bullish on one of these dividend stocks but bearish on the other.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

2 TSX Stocks to Invest $20,000 and Create $2,597.60 in Passive Income

Need income? We got you, with these two top dividend stocks due for more solid growth and passive income.

Read more »

money cash dividends
Dividend Stocks

Trump Tariffs: 1 TSX Stock That Could Take a Huge Hit

This TSX stock hopes to improve shareholder returns in 2025 but could take a huge hit instead from Trump’s tariffs.

Read more »

A lake in the shape of a solar, wind and energy storage system in the middle of a lush forest as a metaphor for the concept of clean and organic renewable energy.
Dividend Stocks

Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Corporation?

Brookfield Renewable Partners (TSX:BEP.UN) is a massive player in renewables.

Read more »

Dividend Stocks

1 Canadian Stock Down 26% That’s Pure Long-Term Perfection

Canadian National Railway (TSX:CNR) is a prime example of a Dividend Aristocrat that merits consideration.

Read more »

oil and gas pipeline
Dividend Stocks

Better Midstream Stock: Pembina Pipeline vs Keyera?

Rising energy demand is setting up midstream stocks for good times, with generous dividends for shareholders.

Read more »