A Core Canadian Stock with Consistent Growth

TD - Bank

Toronto Dominion Bank or TD Bank is the fifth largest bank in North America (by the number of branches). The bank offers a full range of financial products and services to more than 26 million customers worldwide.

It operates through three business lines:

  • Canadian retail accounting for 55% of earnings (TD Canada Trust, Business Banking, TD Auto Finance, TD Wealth, TD Direct Investing and TD Insurance),
  • US retail (40% – TD Bank, TD Auto Finance, TD Wealth and investment in TD Ameritrade), and
  • Wholesale banking (5% – TD Securities).

TD Bank has a large presence with more than 2,330 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 a 164-year-old growth company and ranks among the leading online financial services firms globally, with 13.4 million active digital customers and more than 8 million mobile users. In 2019, TD Bank further leveraged the power of analytics and AI to transform data into insights.

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 95% 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 $1.4 trillion in assets. During the year, TD’s share of TD Ameritrade increased by 26% YoY driven by margin expansion due to higher interest rates and gain on sale of assets in the trust business. The bank expanded its product capabilities with the launch of 16 ETFs and several real estate alternative investment solutions for its high net worth and institutional clients and also upgraded its client servicing and underwriting insurance platform.

TD Bank is experiencing higher revenues driven by volume growth, increasing margins and higher insurance and wealth fee-based revenue. During the year, TD Bank advanced its enterprise cloud strategy with a strategic partnership with Microsoft. It also launched Canada’s new blockchain-enabled digital ID service and invested in a new AI-focused VC fund. TD Bank continued to successfully add volume in its retail segments. The bank also undertook some restructuring charges lately to modernize its operations and improve its efficiency.

Dividends

TD Bank is a Canadian Dividend Aristocrat having raised its dividend for 9 straight years. It has a current dividend yield of more than 4% and a reasonable dividend payout ratio of 47%. The bank last raised its dividend by 10.5% year-on-year and has compounded its dividend growth by more than 10% over the last five years. During the year, TD Bank approved the launch of a new NCIB to repurchase up to an additional 30 million shares.

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%. It last increased annual dividend paid by 11% and ended the year with a strong CET1 ratio of 12.1% even after the repurchase of 30 million shares. TD Bank continued to pay and even increase dividends during the year, despite a challenging operating environment, lower interest rates, and volatile markets. FY 2019 earnings of $12.5 billion and EPS of $6.69 were up 3% from the prior year.

Strong investment in digital initiatives, 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. TD bank also stands a good chance to benefit from organic growth opportunities in key customer segments. It already occupies #3 market share in NYC and is targeting top five position in all its major markets in the U.S. A diversified, retail-focused business model and North American reach act as strong enablers for the bank.

Competition

The bank competes with other leading Canadian banks like Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia, CIBC and National Bank. National Bank ranks amongst the 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.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAristocratAchieverAmbassadorKingGraph
RYRoyal BankFinancial ServicesBanks66106.55153.5812.1812.188.753.9448.0044.2010.22YESNONONO1
TDTD BankFinancial ServicesBanks6974.12102.8211.8611.866.253.9947.3642.9612.26YESNONONO1
BNSScotia BankFinancial ServicesBanks7072.4888.1510.8610.866.674.9753.9743.6010.47YESNONONO1
BMOBank of MontrealFinancial ServicesBanks52103.8066.3311.9811.988.664.0848.9644.247.13YESNONONO1
CMCIBCFinancial ServicesBanks75108.7737.079.729.7211.195.3051.4745.769.63YESNONONO1
NANational BankFinancial ServicesBanks6373.5224.6711.6011.606.343.8644.7942.8410.01YESNONONO1
CWBCanadian Western BankFinancial ServicesBanks6133.502.9211.0111.013.043.3436.8441.128.50YESNONONO1
FNFirst National Financial CorporationFinancial ServicesBanks6238.952.3414.8414.842.625.0174.43121.958.16NONONONO1
LBLaurentian BankFinancial ServicesBanks6844.641.9011.8411.843.776.0071.0942.6810.91YESYESNONO1
EQBEquitable Group Inc.Financial ServicesBanks58107.931.819.719.7111.111.3012.6041.409.30YESNONONO1

Bottom Line

TD Bank continued to strengthen its market-leading position in key product lines expanding its product capabilities and digital and distribution transformation. TD Bank’s business fundamentals remain strong amidst challenging operating environment and growing geopolitical and trade tensions. The bank should continue its dividend growth streak driven by its efforts to add new customers, volume increases, and growth across business segments. A reasonable dividend payout ratio of 47%, should also support future dividends in the high single- to low double- 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.

TD vs Indexes

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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