TD Bank (TSX:TD) is up more than 10% in 2025. Investors who missed the bounce to start the year are wondering if TD stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term returns.
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TD share price
TD trades just below $85 at the time of writing. The stock was as low as $73.50 in December before bargain hunters started to move into the shares after an extended decline that began roughly three years ago when TD traded as high as $108.
TD has underperformed most of its Canadian peers over the past 12 months. This is due to problems in its American operations. Regulators in the United States fined TD more than US$3 billion in 2024 and placed an asset cap on TD’s American business as penalties for not having proper systems in place to detect and prevent money laundering. The asset cap effectively puts TD’s long-running expansion in the American market on hold and forced the bank to abandon its growth projections.
A new chief executive officer took control of TD at the beginning of this month. He is already making big moves, including the recent decision to monetize the remaining holdings TD had in Charles Schwab. TD intends to use the roughly $20 billion in proceeds to buy back a large chunk of TD stock and invest in growth opportunities in Canada while continuing to shore up the systems in the remaining American operations. TD is still a significant player in the U.S. market, serving millions of clients across its portfolio of branches running from Maine down the east coast to Florida.
Outlook
TD is set to report fiscal first-quarter (Q1) 2025 earnings results on February 27. Investors will be looking for indications of stabilization on provisions for credit losses (PCL) in both Canada and the United States. Rising interest rates in 2022 and 2023 put pressure on commercial and residential loans, where borrowers with too much debt ran into trouble. Cuts to interest rates in Canada and the United States in the second half of 2024 eased some of the pressure, but rates on loan renewals remain higher than they were five years ago.
In Canada, roughly one million fixed-rate mortgages are coming due in 2025. TD will have to compete aggressively with the other banks to win or keep attractive customers while risking loan losses from those who are unable to cover the jump in borrowing costs.
TD is working through a strategic review after being hit by the asset cap in the United States. Investors likely won’t get a meaningful update on the new growth strategy until later in the year. Any positive indications that might come out on the Q1 earnings call could give the stock a boost.
Should you buy now?
Contrarian investors might be tempted to pick up TD stock at the current level if there is a positive surprise in the Q1 earnings. TD stock provides a 5% dividend yield at the current level, so you get paid well to ride out any new downside on negative news. Investors who are more careful, however, might want to wait to see how the fiscal Q1 results come in before taking the plunge.
TD should be a solid long-term pick, but additional near-term turbulence could make the ride a bit bumpy.
