TD Bank (TSX:TD) is up 25% in 2025. Investors who missed the bounce 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 total returns.
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TD Bank share price
TD trades near $96 per share at the time of writing. The stock was as low as $73.50 in early December last year after an extended decline from $108 in 2022, reached at the height of the post-pandemic rebound in bank stocks.
TD ran into trouble with U.S. regulators in 2024 for not having adequate systems in place to identify and prevent money laundering at some of the branches in the American operations. Regulators hit TD with fines of more than US$3 billion and placed an asset cap on the company. The asset cap is a problem for the bank. TD’s growth strategy over the past two decades focused heavily on the U.S. market. The bank spent billions of dollars on acquisitions, building a business that runs from Maine right down the East Coast to Florida.
The asset cap and fines are the reason the stock declined through the end of 2024 when TD’s peers enjoyed a nice rebound driven by rate cuts in Canada and the United States.
Upside
A new CEO took control of TD in early 2025. The company has already made some big moves as it works out a new growth strategy. TD sold its remaining interest in Charles Schwab for proceeds of about CAD$21 billion. The bank is using $8 billion of the funds to buy back stock and will allocate the rest to growth projects and other initiatives.
TD finished fiscal Q2 2025 with a common equity tier one (CET1) ratio of 14.9%. This means the bank is sitting on significant capital that will enable the business to ride out any economic turbulence which might occur in the coming months as a result of tariffs in the United States. The cash hoard also provides TD with financial firepower to make a strategic acquisition in a new market, while also being able to compete aggressively in Canada for attractive mortgage clients who are facing renewals in 2025 and 2026 on properties purchased in 2020 and 2021 when interest rates were much lower. About two million fixed-rate mortgages are estimated to be up for grabs in Canada over the two-year period. Banks will want to secure the best customers who can then be sold other financial products, including credit cards, investments, or additional loans.
At some point, the U.S. asset ban should be lifted to enable TD to restart its expansion in the American market.
Risks
TD, along with its peers, reported higher provisions for credit losses (PCL) in the fiscal Q2 2025 earnings report. The bank set aside $1.3 billion in the quarter for potential loan losses compared to $1.1 billion in the same period last year. Businesses and households with too much debt are starting to get into more trouble as interest rates remain high and the Canadian economy weakens. If unemployment spikes, TD could see a wave of loan defaults emerge in the next year.
Time to buy?
The easy money has likely already been made and investors should anticipate some market turbulence in the near term. That being said, the stock still offers a decent 4.4% dividend yield and TD should at some point retest its 2022 high once all the trade war deals are settled and the bank gets the green light to restart its expansion in the United States.
I wouldn’t back up the truck at this level, but TD deserves to be on your radar for a buy-and-hold portfolio.
