Are you invested in Canada’s big bank stocks? Despite them flirting with 52-week highs, some value plays can still be found. That includes this one Canadian bank that’s cheaper than it has been in a long time.
That bank is Toronto-Dominion Bank (TSX: TD). Here’s a look at why investors may want to visit (or revisit) Canada’s second-largest lender.
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Meet TD Bank
Canada’s big banks are almost always considered great long-term investments. There are a few reasons for that, but it comes down to a great mix of regulations, strong domestic performance, juicy yields, and a conservative approach to expansion.
That’s a lot to unpack. But it’s also a key reason TD is a Canadian bank that’s cheaper than it’s been in a long time.
As of the time of writing, TD trades at approximately $101 per share. That’s down just over a dollar from its 52-week high, but the P/E (price-to-earnings) ratio of the bank trades at just 10.5.
That’s one of the lowest levels it has traded at in the past decade and suggests that there could still be some serious upside in buying TD at this juncture. In other words, TD is the one Canadian bank that’s cheaper than it’s been in a long time.
Part of the reason why TD still trades at a discounted level is due to the ongoing fallout from its regulatory issues and its failed acquisition of First Horizon. Those regulatory issues came about when TD was found liable for insufficient anti-money laundering practices.
That ultimately led to an asset cap and hefty fine being imposed on the bank by regulators. Those regulatory delays also led TD to walk away from its US$13.4 billion acquisition.
As a result, the bank has been slow-walking any expansion, instead focusing on other areas, and that’s where the current discount on TD will turn into a long-term opportunity.
TD’s long-term appeal is huge
Now that TD’s regulatory hurdles have passed, the bank is taking its time before jumping into another acquisition. Instead, TD has focused on several areas to drive growth.
This includes expanding its branch network, increasing its staffing for U.S.-based wealth advisors, and investing heavily in its Canadian digital banking platform.
The bank has also completed a series of share buybacks and plans additional buybacks to happen later this year.
More importantly, TD is also building up a sizable war chest with funds originally intended to be part of that failed acquisition. That war chest could then be used for future M&A opportunities, should they arise.
It’s also worth noting that the U.S. banking market TD has focused on is consolidating. This means that future opportunities could come with more attractive price points.
Not bad for a Canadian bank that’s cheaper than it’s been in a long time.
TD is also a great income stock
One of the main reasons why investors love the big banks is the income that they provide. In the case of TD Bank, the bank has provided investors with a tasty quarterly dividend for well over a century.
Today, that yield works out to a tasty 4.2%. This makes TD one of the better-paying (and well-covered) options on the market.
Adding to that is TD’s history of annual increases to that dividend that goes back over a decade. It also means that prospective investors not ready to draw on that income yet can reinvest those dividends. This allows any eventual income to continue growing thanks to those reinvestments.
An investment of $15,000 in TD would provide a half-dozen shares through reinvestments alone in the first year. Augment that with some annual contributions and factor in expected growth, and that becomes a juicy nest egg.
Reminder: TD is a Canadian Bank that’s cheaper than most
No stock, even the most defensive, is not without some risk. Fortunately, TD offers a juicy yield, a defensive domestic market, and a growth-focused international segment.
In my opinion, this is the big bank stock to own in any well-diversified, long-term portfolio.
Buy it, hold it, and watch it (and your future income) grow.
