Toronto-Dominion Bank (TSX:TD) has enjoyed a nice recovery in 2025. Investors who missed the rally 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) focused on dividends and total returns.
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TD Bank share price
TD trades near $103 per share at the time of writing. It recently spiked as high as $108, regaining the 2022 peak the stock hit before going into an extended slide that saw TD fall as low as $73 late last year.
The drop in 2022 and 2023 largely occurred as a result of soaring interest rates in Canada and the United States. Higher interest rates are normally positive for banks due to the expanded net interest margins that can be generated, but the steep increase in rates over such a short period of time was too much for some borrowers to handle. This led to a steady rise in provisions for credit losses (PCL) at TD and its peers. Investors also worried that the central banks would be forced to drive the economy into a recession to get inflation under control.
In late 2023, the Bank of Canada and the U.S. Federal Reserve indicated they were done raising interest rates. This led to a rebound for the broader banking sector as investors started to anticipate rate cuts and lower PCL. In addition, the feared recession never materialized, likely due to high levels of pandemic savings that kept consumers spending.
TD should have rallied through 2024 with the rest of the sector, but the stock continued to slide as a result of issues with its U.S. operations. American regulators placed an asset cap on TD and hit the bank with fines of more than US$3 billion last year for not having adequate systems in place to detect and prevent money laundering.
Opportunity
Bargain hunters began buying TD stock in late 2024 with the expectation that most of the bad news was already in the rearview mirror. TD put a new CEO in charge in early 2025. Since then, the bank sold off its remaining position in Charles Schwab for net proceeds of more than $20 billion. TD is using $8 billion to buy back shares while allocating the rest to other initiatives.
TD just reported fiscal third-quarter (Q3) adjusted net income of $3.87 billion compared to $3.65 billion in the same quarter last year. PCL dropped to $971 million compared to $1.07 billion in fiscal Q3 2024. The financial results largely came in better than what was expected by analysts who cover the bank.
At some point, the U.S. operations should be cleared to renew expansion. In the meantime, TD is sitting on a cash hoard that will enable it to ride out any market turbulence or pursue deals in other markets. The war chest also gives the bank the flexibility to compete aggressively for attractive Canadian customers who are part of the roughly two million mortgage holders that need to renew in 2025 and 2026. Winning the mortgage business opens the door to selling other products.
Time to buy?
The easy money has likely already been made, and the broader equity markets are due for a pullback. In addition, tariffs could push up inflation in the coming months, and the economy is starting to show some signs of weakness.
TD arguably deserves to be a core holding in a diversified portfolio, and you get paid a decent 4% dividend yield today, but new buyers of the stock might want to wait for a better entry point that could be on the way.
