Canadian investors looking for long-term income likely look at Canadian banks first and foremost. And honestly, they should. Banking stocks are some of the best buys not just in the Canadian market, but around the world. These are some of the largest market caps on the TSX today. Yet when it comes to which of these offer the best growth and income, Toronto-Dominion Bank (TSX:TD) belongs at the top of that list. So, let’s get into why.
Defensive strategy
One of the top reasons that TD stock is a strong option is thanks to its diversification. TD stock is more than a Canadian retail bank. Though that sector can’t be ignored, given the last earnings report saw record revenue at $5.24 billion, along with record net income at $1.95 billion.
Yet the exciting news came from other areas of the business. Most notably, this included growth in its wealth and insurance businesses, with net income in these segments up 63%. Plus, its wholesale arm rose 26% year over year. With that mix, this provides stability during a downturn, as when lending slows, wealth and insurance provide fee-based and premium revenue. And the fact that TD stock is hitting records across multiple areas shows it’s not dependent on a single growth engine.
Capital locked
Bear markets can also punish weakly capitalized banks. However, TD stock isn’t one of them. In fact, it’s one of the strongest when it comes to balance sheets, not just in Canada, but in North America! Currently, it offers a common equity tier-one ratio at just 14.8%, comfortably within regulatory minimums. Excess capital gives it room to absorb higher loan-loss provisions as well, especially if credit weakens.
All this capital remains steady enough even during buybacks and dividend increases. Right now, TD stock offers a 3.9% dividend, dishing out $4.20 each and every year. That’s while offering a 36% payout ratio. Even in stressed scenarios, TD stock’s dividend looks quite safe. Therefore, investors can gain dependable income on top of that steady cash flow. And right now, a $7,000 investment could bring in dividend income of $285 each and every year!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| TD | $105.36 | 66 | $4.32 | $285 | Quarterly | $6,953 |
Still valuable
Now with all this, you might think TD stock isn’t all that valuable, but you’d be wrong. That’s because the stock continues to make a comeback from its anti-money-laundering case. So, even with shares rising higher, the dividend stock trades at just 12.3 times earnings and 1.6 times book value.
So, not only does TD stock trade at a fair and not stretched multiple for a bank, it also offers a return on equity (ROE) of 17.6%. All this is hugely important during a bear market, where expensive stocks can see painful drops in share price. TD stock’s valuation, therefore, combined with profitability and income, provides a margin of safety for today’s investor.
Bottom line
If you’re an investor seeking not just long-term growth, but protection in a bear market, TD stock is a prime option. It combines the diversification of earnings power, a stable capital flow, and a well-covered dividend — all while offering a valuation that’s far less than demanding. For investors wanting protection during a bear market, TD stock is one of the best ways to protect their investments.
