Toronto-Dominion Bank (TSX:TD) is one of the Big Six Canadian bank stocks and one of the largest banks on the continent. Considering dividend reinvestments, the returns for the bank stock over the last three decades are well over 5,000%. Like its largest peers in the Canadian banking sector, it has been a market-beating investment for long-term investors for years.
As of this writing, TD Bank stock trades for $83.18 per share, down by around 21% from its 2022 all-time high. The ongoing trade war with the U.S. and regulatory issues have dragged the broader market down to lower levels, resulting in a downturn in share prices across the board. Not everything about a decline in share prices is bad.
At current levels, TD Bank stock boasts an inflated 5.05% dividend yield. The higher-than-usual yield alone can make it an attractive investment for income-seeking investors. However, that should not be the only factor to consider to determine whether it might be a good investment right now. There are other reasons that can make it a good investment.
Image source: Getty Images
Repositioning its balance sheet
The sluggish environment and regulatory issues are forcing financial institutions to make adjustments. TD Bank has recently sold off its equity investment in Charles Schwab Corporation in a bid to improve its balance sheet and deliver better shareholder value. The bank’s chief executive officer, Raymond Chun, has stated that TD Bank has sold off its 10.1% equity in Charles Schwab as part of its strategic review.
TD Bank plans to use around $8 billion from the proceeds of selling off its equity in Charles Schwab to repurchase its own stock. The bank intends to invest the rest into its businesses to accelerate organic growth, drive performance, and provide more support to clients and customers.
As one of the Big Six, TD Bank already enjoys a strong capital position. The divesture will significantly improve it, once complete. The move will improve TD Bank’s common equity tier-one (CET1) ratio to 14.2%. The higher the CET1 ratio, the more flexibility it can have for future investments without compromising on maintaining healthy capital levels.
The bank is also making significant strides in improving its balance sheet in the U.S. market. It is restructuring its balance sheet and has already reduced its assets by around $32 billion between September 2024 and January 2025.
Foolish takeaway
The recent investor call saw TD Bank executives address the growing concerns many investors have surrounding the tariff wars and trade risks, and the impact they will have on the economy. Much of what transpires will depend on how both governments respond to the situation as it develops.
Despite facing these challenges, TD Bank reported a solid $3.6 billion in earnings in its first quarter for fiscal 2025. The bank is still on track to meet its medium-term financial targets. Priced at around 10 times forward earnings, the stock trades at around 6% discount to analyst consensus price targets. It might be a good time to invest in its shares to lock in the high-yielding dividends.
