Valued at a market cap of almost $220 billion, Toronto-Dominion Bank (TSX:TD) is among the largest companies in Canada. Over the last 10 years, the TSX bank stock has returned 161% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are closer to 300%, which is exceptional for a cyclical company.
As past returns shouldn’t matter much to current or future investors, let’s see if TD Bank stock can continue to beat the broader markets over the next three years.
Is TD Bank stock still a good buy?
Toronto-Dominion Bank is executing an ambitious transformation plan to enhance shareholder value. The Canadian banking giant revealed comprehensive strategies to boost profitability while managing ongoing regulatory challenges in the United States.
Last year, CEO Raymond Chun outlined a few financial targets.
- First, he projects the return on equity to increase to 16% by 2029.
- Second earnings per share are forecast to grow between 6% and 8% in fiscal 2026, accelerating to 7% to 10% in the medium term.
- Third, operating expenses are estimated to be reduced by $2 billion to $2.5 billion through structural cost cuts, targeting a mid-50s efficiency ratio.
Capital deployment represents a major shift in strategy as TD announced plans for a new $6 billion to $7 billion share buyback program in 2026. Effectively, the banking giant aims to return all capital generated from the Schwab sale to shareholders.
The bank maintains a robust common equity Tier-1 ratio of 14.7%, well above regulatory requirements, which provides flexibility for organic growth and shareholder returns.
Growth strategy
TD’s growth strategy is centred on deepening customer relationships across all business lines.
- In Canadian personal banking, TD leads in primacy, with a third of Canadians banking with the institution.
- Management identified significant opportunities to increase credit card penetration by 700 basis points and capture $40 billion in mortgage volume from existing clients.
- The bank is adding 1,200 wealth advisors and 880 business bankers over three years to capitalize on cross-selling opportunities.
Artificial intelligence investments play a crucial role in the transformation. For instance, TD is targeting $1 billion in annual value creation through 75 AI use cases already generating $170 million in benefits. The bank expects to automate significant portions of mortgage processing and claims handling while improving the customer experience.
In the United States, remediation of anti-money laundering deficiencies remains the top priority. The bank has made notable progress implementing new systems and controls, with governance investments expected to stabilize around $500 million annually.
Despite the asset cap restriction, management created $52 billion of lending capacity through balance sheet restructuring, positioning the business for mid-single-digit loan growth while improving margins and return on equity toward 13% over the medium term.
TD will continue to grow its annual dividend
Despite these market-beating returns, TD Bank offers shareholders an attractive dividend yield of 3.4%. In the last 12 months, TD has paid shareholders an annual dividend of $4.32 per share, up from just $0.25 per share in 1996. Analysts forecast the dividend payout to increase to $5.40 per share in fiscal 2030, which enhances the yield at cost.
Moreover, adjusted earnings per share are estimated to expand from $8.37 in fiscal 2025 to $11.83 in fiscal 2030. If TD stock is priced at 14 times forward earnings, which is in line with its current multiple, it could gain 35% over the next 40 months. If we adjust for dividend reinvestments, total returns could be closer to 50%.
