After underperforming the broader markets between February 2022 and December 2024, Toronto-Dominion Bank (TSX:TD) stock has staged a remarkable comeback year-to-date.
In the last seven months, TD Bank stock has returned over 32% to shareholders. So, let’s see if you should own the blue-chip TSX dividend stock at the current valuation.
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Is TD Bank stock a good buy right now?
TD Bank delivered solid results in fiscal Q2 2025 (ended in April), with earnings of $3.6 billion, or $1.97 per share, while executing a comprehensive strategic repositioning under new CEO Raymond Chun.
The bank’s performance reflects both operational resilience and proactive management of regulatory challenges, positioning TD for improved returns despite near-term headwinds.
TD’s financial strength remains a key differentiator, as it ended Q2 with a common equity Tier 1 ratio of 14.9% and no external debt. The bank successfully completed $30 million in share buybacks ($2.5 billion total) and continues targeting $8 billion in total repurchases from Schwab sale proceeds.
Revenue grew 9% year-over-year, driven by trading income and Canadian banking volumes, while impaired credit losses declined quarter-over-quarter across most portfolios.
Management expressed confidence in its progress on anti-money laundering (AML) remediation, with most actions expected to be completed by the end of 2025. The bank maintains an annual guidance of $500 million for AML-related expenses through 2026, with costs expected to normalize thereafter.
Strategic repositioning
Chun’s strategic review focuses on four areas: capital allocation optimization, portfolio simplification, capability investments, and cost restructuring.
Notable actions include exiting the $9 billion correspondent mortgage business and winding down $3 billion in point-of-sale financing. The bank expects to incur $600–700 million in restructuring charges, which will generate $550–650 million in annual savings.
TD completed its U.S. investment portfolio repositioning ahead of schedule, delivering net interest income (NII) benefits at the upper end of the $300–500 million range.
The TSX bank stock has achieved a $40 billion buffer to its $434 billion asset cap and expects a substantial net interest margin (NIM) expansion in Q3. Management projects improving U.S. return on equity through 2025–2026, despite the short-term impact of the Schwab sale.
TD’s strategic repositioning, strong capital position, and expanding Wholesale Banking capabilities (revenue doubled to $2 billion quarterly) support long-term value creation. While AML costs and tariff-related uncertainty create near-term pressures, the bank’s disciplined approach and organic growth opportunities position TD favourably for sustained outperformance once remediation is concluded.
Is TD Bank stock undervalued?
Since the start of 2001, TD Bank stock has returned 400% to shareholders. After adjusting for dividend reinvestments, cumulative returns are closer to 1,100%. Despite these outsized gains, the TSX bank stock has remained rangebound over the last 40 months.
Analysts tracking TD stock forecast adjusted earnings to expand from $7.81 per share in fiscal 2024 to $11 per share in fiscal 2029, indicating an annual growth rate of 7%.
A widening earnings base will enable the banking giant to raise dividends from $4.08 per share in fiscal 2024 to $4.73 per share in fiscal 2027. TD stock trades at a forward price-to-earnings multiple of 12.4 times, which is above its 10-year average multiple of 11 times.
If the TSX stock is priced at 11 times forward earnings, it will trade around $121 in early 2029, indicating an upside potential of 20% from current levels. If we adjust for dividends, cumulative returns will be closer to 35%.
