Tax-Free Savings Account (TFSA) investors seeking a combination of share price momentum, dividend growth, and upfront yield may want to reconsider TD Bank (TSX:TD) or any one of its bankable peers. Undoubtedly, the only thing better than a 4.2% yield is one that’s tax-free.
And while some new and young TFSA investors may go all-in on growth-oriented securities for their TFSA (artificial intelligence, or AI, is really booming these days, after all), I think that it’s always nice to have a steady passive income payer for some added stability, especially if you’re growing a bit worried about some of the commentary from tech industry pundits pointing to a potential bubble in AI stocks. Also, it’s nice to have a growing tax-free dividend that can stand tall, even when the market is ready to roll over.
Indeed, nobody knows when the next market plunge will happen, but if I were to place a bet, I’d say there will be a tech wreck and a rush to the lower-beta dividend plays that may have been passed because of their relatively modest return prospects. Of course, the best time to pick up shares of TD for one’s TFSA would have been at the start of the year. Shares have been blasting off in 2025, now up just shy of 34%. Indeed, incredible performance from a banking laggard that seemingly was left behind in the big bank rally.
Source: Getty Images
TD stock’s a huge winner in 2025.
In a prior piece, I made a bold call. I predicted TD shares would breach the $100 per-share mark as it looked to add to its impressive start to the year. Today, the name is going for $102 and change, and new all-time highs could come into play, especially if TD impresses with its coming quarters.
Though the tables have turned and investors are viewing TD Bank positively again, I’m still inclined to label TD shares as cheap. Indeed, 10.6 times trailing price to earnings (P/E) isn’t at all stretched, even if we’re talking about the large-cap financials, which do tend to trade at a discount to the market multiple.
Either way, TD stock still looks discounted relative to its peers. And as the firm continues to execute, I’m inclined to bet that there’s still more ground to catch up relative to its red-hot banking peers, some of which are poised to make new highs going into the fourth quarter.
So, is this bank rally worth banking on going into September and the start of the chillier season?
I think it is. But do be mindful of the bumps on the road that the market tends to roll over at the end of the third quarter and the beginning of the fourth quarter. As more analysts warm up to TD Bank, I think it’s time to get serious about buying as the great bank bull market of 2025 continues strong.
Higher NIMs (net interest margins), falling PCLs (provisions for credit losses), and greater certainty on the trade war with the U.S. (and perhaps growing hopes of its resolution) help pave the way for a smoother ride in the Canadian banks, I’d not only look to add to a TD position, I’d add it to the top of a TFSA shopping list, provided there’s still space in it to do some buying. With bank earnings season approaching, investors are right to be a bit nervous, especially given how hot the business of banking has been this year.
Bottom line on TD stock
Just because bank shares are in rally mode does not mean that earnings season will be a huge hurdle that’ll wipe out some of the poorer performers. Indeed, some analysts are urging caution ahead of earnings, given that higher multiples tend to translate to greater expectations.
However, I’d view earnings as less of something to be fearful of and more of something that could bring forth better near-term entry points for those who missed the year-to-date run. In my view, TD stock isn’t just a worthy buy; it’s a TFSA-worthy buy.
