Toronto-Dominion Bank (TSX:TD) is one of the top two Canadian big banks. It’s also one of the top 10 North American banks — the sixth largest bank by total assets and by market capitalization. This size and market position within the banking industry gives TD Bank the advantage of diversification, presence, and scale.
Here’s why you should consider TD Bank stock for its generous dividend yield of 3.8%.
A strong dividend payment history
I would like to start off by acknowledging TD Bank’s strong track record of dividend growth. In the last 10 years, the bank’s annual dividend has increased 123% to the current $4.20. This is equivalent to a compound annual growth rate (CAGR) of 8.4%.This dividend has provided investors with reliable and growing income for a great many years. Today, this dividend stock is yielding almost 4%.
This dividend yield is something special because it has also been accompanied by a strong share price performance. As you can see from the graph below, TD Bank’s stock price has increased by 108% in the last 10 years.
TD Bank’s strong performance
The bank’s dividend is supported by a strong backdrop, with a solid balance sheet and strong earnings and cash flow growth. For example, TD’s common equity tier-one capital ratio is first among the banks. This ratio is a key measure of a bank’s financial strength. It measures the company’s capital against its risk-weighted assets. TD’s ratio is a very strong 14.8% — this is the strongest in Canada and the second strongest in North America.
Also, TD’s latest quarter was strong, with results being boosted by higher fees and trading-related income as well as higher volumes in the insurance segment. Finally, adjusted earnings per share (EPS) came in at $2.20, which was 7% higher than the prior year.
Looking ahead: What’s next for TD?
TD Bank has highlighted some of the risks that are out there today. These risks include geopolitical risks, such as de-globalization and trade protection. All of this has served to lower economic growth forecasts and increase the credit risk to all banks. In fact, TD Bank is forecasting economic growth in Canada to be a mere 1.3% and 1.4% in the next two years, respectively. This slower growth scenario is not a positive for TD, but the bank has taken steps to improve its resiliency.
Risks also include financial crimes, cyber risks, and fraud, all of which seem to be on the rise. While TD Bank is not immune to any of these, which we have seen with the money laundering scandal that plagued TD in its recent past, the bank remains one with a low-risk culture and one that is taking the steps necessary to learn from this failure.
In response to all of this, TD Bank has maintained its top capital ratio, and it has built its reserves over the last few quarters. They now stand at almost $600 million.
TD Bank and all banks are the engines of strong economies, as well as victims of weak economies. This is why the best-performing banks are the ones that have healthy, low-risk cultures that help them stay out of trouble when the economy falters. In TD Bank’s case, it is well-known for having a low-risk culture. This will help it to be resilient when the economy is struggling, as it may very well do in the coming years.
The bottom line
I think that TD Bank stock is the bank stock to buy for dividend income. This is because of the reasons discussed in this article, which make it the most resilient to any upcoming economic hardship.
