TD Bank an Opportunity with Consistent Growth

TD - TD BankTD Bank is the second largest Canadian bank by market capitalization. When looking at North America where TD is establishing itself as a major bank, it is the 5th largest bank by total assets and the 6th largest bank
by market capitalization. TD is one of only a few banks globally to be rated Aa1 by Moody’s.

TD Business Summary

Headquartered in Toronto, Canada, with more than 80,000 employees in offices around the world, The Toronto-Dominion BankTSE:TDNYSE:TD and its subsidiaries are collectively known as TD Bank Group (TD). Below is an outline of TD’s business in Canada and the US with a view of its locations.

TD’s Canadian Businesses

  • Network of 1,154 branches and 3,172 ATMs
  • Composite market share of 21%
  • Ranked #1 or #2 in market share for most retail products
  • Comprehensive wealth offering with significant opportunity to deepen customer relationships
  • Top three investment dealer status in Canada

TD’s US Businesses

  • Network of 1,257 stores and 2,399 ATMs
  • Operations in 4 of the top 10 metropolitan statistical areas and 7 of the 10 wealthiest states
  • Operating in a US$1.9 trillion deposits market
  • Access to nearly 82 million people within TD’s footprint
  • Expanding U.S. Wholesale franchise with presence in New York and Houston
TD Locations
Source: QA TD Investor Presentation

By the numbers,

TD Revenue

TD - Revenue Performance
Source: 2017 – Q1 Quick Facts

TD had a strong quarter with net income at $2,533 million for an increase of 14% over a year ago.

The revenue streams are outlined below by geographical distribution. Canada continues to be the primary source of income and TD continues to grow its top line in the US with a target earning growth of 7%-10%. Considering the Canadian oligopoly with the big five banks, TD’s investment in the US is paying off in contributing to the its revenue growth.

The growth should lead to TD increasing its dividends at the same rate possibly. This past dividend increase was 9.09%.

TD - Revenue by Region

TD - Revenue Growth
Source: 2017 – Q1 TD Investor Presentation

On the Basel III requirements, TD is well-capitalized with a Common Equity Tier 1 (CET1) Ratio of 10.1%.

TD Dividend Summary

The Toronto-Dominion Bank is a Canadian Dividend Aristocrats with 6 consecutive years of dividend increases. Not that impressive but it’s a start and the minimum for the Canadian list. TD is boasting an 9.11% CAGR dividend growth over the past 10 years, which is consistent when compared with the past 3 and 5 years. Consistent 10% CAGR growth is what I look for and TD is very consistent over a 10 year period.

  • 3 year average of 9.73%
  • 5 year average of 10.42%
  • 10 year average of 9.11%
TD - Dividend Growth
Source: 2017 – Q1 TD Investor Presentation

I like to look at the growth of dividends against the EPS has it shows if the earnings from the company are keeping up with the dividends. If it’s not, then it’s a warning sign to look further into that. TD is right in line with the earnings after they got back in control from the financial crisis. The banks tend to have a 50% target for their payout ratio and TD only had 1 year with challenges.

TD - Dividends vs EPS
Source: TD Financial Reports

The numbers above point to TD Bank being in control and focused on growing their business. The payout ratio is in control since 2011 which shows management has been in control. Below is the average historical payout ratio over the past 10 years highlighting consistency which is what we want as investors.

  • 3 year average of 46.40%
  • 5 year average of 46.23%
  • 10 year average of 47.86%

Investment Philosophy #1: BUSINESS QUALITY

The financial sector, and more specifically the banking and loan business, is critical to any economy and has been a necessity for centuries now. With the Canadian bank oligopoly, the downside of owning a bank is limited.

TD is the second largest Canadian bank and has been on the tails of Royal Bank of Canada (TSE:RY, NYSE:RY) for many years. While 61% of their business is based on the Canadian banking oligopoly, 30% of the business can grow further with the improved US economy and regular acquisitions.

TD - Business Quality
Source: 2017 – Q1 TD Investor Presentation

Here is what a strong business can do for your money. If you had invested $1,000 in TD 10 years ago, it would be worth $2,279.51 for a 9.01% compound annual growth rate (CAGR).

TD - 1,000 Growth
Source: TD Financial Reports

Investing Opportunity Score: 67%

Based on my Opportunity Score formula, TD TSE:TDNYSE:TD has a score of 67% (the higher the better) for being an investing opportunity. Above 60% is a good range to pay attention to an opportunity. Anything around 80% will have a short window of opportunity unless the stock got beaten down for other qualitative reasons.

The combination of stock appreciation and dividend growth make TD a great dividend growth stock. It recently had negative news regarding the sales technique and dropped around 5% in price making it attractive for investors on the sideline waiting to enter.

Do you want to find out where the competitors stack up against TD? There are 25 stocks in the financial sector to be compared. Subscribe to the Dividend Performance List over at Dividend Snapshot and easily compare many key stock data points before making your next investment.

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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