The Toronto-Dominion Bank (TSX: TD) just released its earnings release for the fiscal fourth quarter ended October 31. The results beat expectations on both the top line and the bottom line. The bank increased its dividend by 2.9% after they came out. Investors took well to TD’s fourth quarter earnings release, sending the stock up 1.5% in the hours immediately after the release came out.
For me, this was all pretty much expected. I’d been bullish on TD Bank all year long, having bought some shares at $78 late last year and another lot at $82 earlier this year. I also shared my bullishness on TD stock extensively here on Motley Fool. Both buys worked out well for me and outperformed the market. Presumably, some of my readers shared in the gains.
In this article, I’ll explore TD Bank’s fourth quarter earnings beat and what it means for investors.
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Earnings recap
In its fourth quarter earnings release, TD revealed high growth and profitability across the board, exceeding expectations on all fronts. Some highlight metrics included:
- $16 billion in adjusted revenue, up 7.5%.
- $15.5 billion in reported revenue, down less than 1%.
- $2.19 in adjusted earnings per share (EPS), up 26.7%.
- $1.82 in reported EPS, down 7.6%.
- Some lingering expenses from the successful Cowen deal and the failed First Horizon deal, both pretty negligible.
- A 14.7% common equity tier 1 (CET1) ratio, improved from 13.1%.
- A dividend hike from $1.05 per share to $1.08 per share (quarterly, so the new annual amount is $4.32).
- A target of 6%–8% EPS growth for 2026.
It’s hard to overstate how much things have improved from this time last year. In December of 2024, the U.S. Department of Justice (DoJ) announced that TD was being fined $3 billion and having its U.S. retail segment assets capped at $430 billion. Investors were selling TD stock en masse, and the company was warning of no growth for 2025. In the end, TD ended up achieving significant revenue growth in 2025. Now, it’s guiding for growth in the 6% to 8% range in 2026. Nice!
What to do with TD stock now
It’s nice to know that TD just put out a good quarter. However, the markets reacted to the release swiftly, sending TD stock soaring. Given this, is TD stock a buy?
Honestly, I still think that TD is a fairly sensible portfolio holding. However, it is clearly not going to repeat its brilliant 2025 performance again in 2026. I’m not planning on buying more TD stock here. But consider this:
- TD still trades at just 10 times reported earnings.
- Its P/E ratio going by adjusted earnings – 13.8 – is much lower than the average for the TSX.
- Many sectors such as telcos and utilities trade at over 20 times earnings today while growing less and being less profitable than TD bank.
It’s normal for bank stocks to trade at lower multiples than other sectors, because banking is a highly regulated, asset heavy industry with low expected growth. Nevertheless, we have TD Bank here trading at 10 to 13.8 times earnings while growing quite a bit, and expecting to grow more in the future. I’d rather own this than most of what’s floating around the TSX telco and utilities sectors, as well as other banks.
Foolish takeaway
In the fourth quarter, TD Bank again proved that it can do the impossible: grow its earnings while having one hand tied behind its back. The asset cap on TD’s U.S. retail bank is a major handicap, yet the bank is still growing and beating the market. In my view, it’s still an “OK” hold.
