TD Bank (TSX: TD) is fresh off one of the best years it’s had in a very long time. Undoubtedly, just when you think it’s time to give up on the Big Six Canadian banks, they go ahead and post an incredible year. And while the momentum has since slowed, don’t expect the pace of generous dividend hikes or earnings beats to follow suit. If anything, any period of sideways action or bumps in the road might serve as an opportunity for income investors to top up their positions.
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Things are looking up for TD stock in 2026
Even in the face of geopolitical crisis and another inflationary shock to the system, the banks have what it takes to hold their own and keep on paying those generous dividends out as usual.
As airlines slap on fuel surcharges and prices at the pump start looking to record highs, perhaps it’s best for investors to give the big banks the benefit of the doubt, even if there is a bit more uncertainty regarding where interest rates will land by year’s end.
In any case, the outlook for TD stock remains very good, at least in my view. The bank was once the least-loved of the cohort, thanks in part to the money-laundering woes and penalties that followed. Now, investors are focused on the actual results, which have been solid, as well as the road ahead under its fantastic new CEO, Raymond Chun.
TD Bank is still way too cheap
Of course, Mr. Chun may have stepped in at the right time, as TD Bank and the rest of the Big Six proceeded to make up for lost time. But with a fantastic game plan, which could keep TD Bank going strong, I see potential for significant earnings growth as well as upside potential for the multiple, which still looks quite discounted relative to the peer group.
At the time of this writing, shares of TD Bank trade at 10.8 times trailing price-to-earnings (P/E). That’s cheap, arguably too cheap in an environment where it’s become quite normal to pay closer to 15 times trailing P/E for a big Canadian bank stock.
TD Bank might still have a lot of hurdles in the U.S. market, but I do think that the bank can continue to grow despite its U.S. asset cap. The bank has extra capital to spend on share repurchases and investments in technology (most notably AI). Even without growing assets in the U.S. market, there’s no reason why the bank can’t still grow its earnings, especially as AI automation and cost cuts pave the way for a better, sustained margin mix.
Tech and efficiencies could drive earnings higher
Such technological advancements can also boost the customer experience and drive meaningful efficiency alpha. In prior pieces, I’ve praised TD Bank for its tech-savvy. In the AI age, effective utilization of technology, I think, can separate winners from the losers. In any case, TD Bank is already on the cost savings track. And as its returns on equity march even higher, I think it’s about time that investors start viewing TD Bank as a stock worthy of a premium again.
As efficiency ratios look to improve while investors start to move on from the regulatory discount still attached to the name, I can’t help but think that 2026 could be another upbeat year for the bank, even if the rest of the market sinks into a correction or worse.
