TD Bank – A Core Holding with Consistent Growth

TD - Bank

Toronto Dominion Bank or TD Bank is one of the top ten largest financial services companies in North America. The bank offers a full range of financial products and services to more than 25 million customers worldwide.

It operates through three business lines:

  • Canadian retail accounting for 58% of earnings (TD Canada Trust, Business Banking, TD Auto Finance, TD Wealth, TD Direct Investing and TD Insurance),
  • US retail (34% – TD Bank, TD Auto Finance, TD Wealth and investment in TD Ameritrade), and
  • Wholesale banking (8% – TD Securities).

TD Bank has a large presence with 2,339 retail branches and over 6,000 ATMs in North America and 15 TD Securities offices worldwide. The bank operates in four of the top 10 metropolitan areas and 70% of its operations are in the wealthiest states of the U.S.

Investment Data

Revenue Growth & Market Exposure

TD Bank is the sixth largest bank by assets and market capitalization value in North America. The bank ranks among the leading online financial services firms globally, with 12.9 million active digital customers.

TD Bank occupies #1 or #2 market share position for most of the retail products. Strategic branch locations in Canada and the U.S. positions the bank to better serve its clients. TD Bank has access to nearly 110 million people in the U.S. within its footprint. Over the years, the bank has been increasing its retail focus driven by lower-risk businesses with stable, consistent earnings. Retail earnings now account for 92% of the total earnings mix.

TD Bank provides a wide spectrum of financial products and services ranging from personal banking to business and commercial banking, credit cards, wealth and insurance in the retail segment. In the wholesale banking segment, the bank offers research, investment banking, capital market services, and global transaction banking. TD Ameritrade is a leading US brokerage firm with more than $1.2 trillion in assets.

The bank is experiencing higher revenues driven by volume growth and increasing margins. It is expanding its U.S. wholesale franchise with a presence in New York and Houston. TD is also investing heavily towards digital enhancements, modernizing its platforms for better customer experience. Its acquisition of Greystone in November 2018, has resulted in the creation of the largest money manager in Canada.

Dividends

TD Bank is a Canadian Dividend Aristocrat having raised its dividend for 8 straight years. It has a current dividend yield of 3.9% and a reasonable dividend payout ratio of 49%. The bank last raised its dividend by 10.5% year-on-year and has compounded its dividend growth by more than 3% over the last decade.

The bank has a history of proven performance delivering industry leading long term shareholder returns in the past. It has achieved more than 11% CAGR in earnings over the last five years. TD Bank is anticipating to grow its earnings by 7%-10% over the medium term and targets a payout ratio of 40%-50%.

Strong investment in digital initiatives to drive client growth, solid customer focus, and a large footprint have helped TD Bank to consistently deliver solid results. The bank is in a good position to drive significant volume growth in its retail business on the back of strong employment and resilient economic growth. An active business environment in the U.S. also acts as prominent tailwind for TD Bank and should support the bank’s dividend growth streak in the future.

TD bank also stands in a good place to benefit from organic growth opportunities in key customer segments. It already occupies #3 market share in NYC and is targeting top 5 market share position in all its major markets in the U.S. A robust banking platform in Canada, significant organic growth opportunities in the U.S., and focus on client driven wholesale business act as strong enablers for the bank.

Competition

The bank competes with other leading Canadian banks like Royal Bank TSE:RY, Bank of Montreal TSE:BMO, Scotiabank TSE:BNS, Canadian Imperial Bank of Commerce TSE:CM and National Bank TSE:NA. National Bank ranks amongst six largest commercial banks in Canada, while CIBC caters to 11 million individual, small business, commercial, corporate and institutional clients in Canada, the U.S. and around the world. Scotiabank is a leading international financial services provider with a rich history of 185 years while Bank of Montreal is the eighth largest bank in North America by assets and Royal Bank is one of Canada’s largest banks.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAmbassadorAchieverAristocratKingGraph
RYRoyal BankFinancial ServicesBanks66108.44155.5112.3611.578.793.8747.7844.2010.15NONOYESNO1
TDTD BankFinancial ServicesBanks6976.55139.2612.1710.876.303.8746.9842.9612.13NONOYESNO1
BNSScotia BankFinancial ServicesBanks6776.5093.3611.5010.206.694.7153.8143.6010.21NONOYESNO1
BMOBank of MontrealFinancial ServicesBanks63100.6864.3410.6410.279.474.0943.5144.127.14NONOYESNO1
CMCIBCFinancial ServicesBanks75114.9851.2210.089.3011.455.0150.3145.769.35NONOYESNO1
NANational BankFinancial ServicesBanks6869.3923.1911.2110.616.243.9243.5942.7210.07NONOYESNO1
CWBCanadian Western BankFinancial ServicesBanks6035.123.0611.7510.393.003.1937.3341.128.35NONOYESNO1
FNFirst National Financial CorporationFinancial ServicesBanks4941.962.5215.9913.792.634.5372.23121.907.68NONONONO1
LBLaurentian BankFinancial ServicesBanks5446.651.9811.639.824.015.6665.8442.6410.57NOYESYESNO1
EQBEquitable Group Inc.Financial ServicesBanks64113.311.9010.229.3111.181.2412.5241.409.24NONOYESNO1

Bottom Line

A diversified, retail-focused business model and North American scale are strong competitive advantages for TD Bank. The bank is known for its good customer service and relationships, and a strong focus on operational efficiency. It is also highly rated by major credit rating agencies. With a reasonable dividend payout ratio of 49%, the bank should continue growing its future dividends in the mid-to-high single digit range.

For Canadian investors, TD can be a core holding and one of the few stocks with stock appreciation, dividend growth and a good dividend yield. You can hold it during your accumulation and retirement years.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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