The Toronto-Dominion Bank (TSX:TD) has been one of the best-performing TSX bank stocks of 2025. Up 14% year-to-date, it has handily outperformed both the TSX Composite Index and the TSX Financials sub-index. At the start of the year, investors worried about TD Bank, which had just taken a $3 billion fine and $430 billion asset cap from the U.S. Department of Justice (DoJ). Later, though, the asset cap turned out to have been a blessing in disguise, as it freed up money for TD to buy back its own stock at higher yields than its loan portfolio, and a higher earnings yield than its Charles Schwab position.
As a result of the large buyback and a relatively good first-quarter earnings performance, TD Bank stock has been really rallying this year. In this article, I will explore the outlook for TD Bank stock in 2025.
Canadian financials
TD Bank’s position in Canadian banking is quite strong. It is the first or second most recognized brand in Canada; its branches keep good hours, and it offers competitive interest rates. Its brokerage, TD Waterhouse, still has trading fees, which might hold the bank back a little in brokerage services. But the core retail banking business is among the best in class, with high capital and liquidity coverage ratios.
There are legitimate questions that can be asked about whether Canadian banking in general is a good place to be right now. Canada has among the highest house price-to-income ratios in the G7. This could indicate coming defaults and other issues – particularly if Trump’s tariffs cause a recession. The Bank of Canada is trying to keep things under control by lowering interest rates. That should reduce the risk of a housing market collapse, but on the other hand, it means lower interest income on variable interest rate loans for TD.
U.S. retail and investment banking
Next up we have U.S. retail and investment banking.
U.S. retail was traditionally TD’s growth driver but this year it’s more of an area of concern. The segment was hit by a $3 billion fine and a $430 billion asset cap from the US DoJ last year. The fine is in the past now, but the asset cap will keep affecting performance this year. It limits how much money TD can make in the U.S. retail segment and prevents the bank from opening new branches. On the flipside, money taken out of U.S. retail to comply with the asset cap can be used to fund buybacks. Speaking of which, the bank is already using some of that money to fund an $8 billion buyback, which is expected to be concluded by the start of 2026.
U.S. investment banking is TD’s best-performing business and biggest growth driver this year. It grew its earnings 46% last quarter, the best growth rate out of all of TD’s businesses. The growth was helped by the 2023 acquisition of Cowen, a highly respected boutique investment bank.
Foolish takeaway
Taking everything into account, the outlook for TD Bank appears rosy for 2025. The bank is among the cheapest in its class while returning the most to shareholders. Its future looks positive.
