Low-Risk Toronto-Dominion Bank
- Recent Price: CAD$72.20
- Yields: 4.1%
- Dividend Growth of +7%
- 5-year total returns estimate: 11-12% per year
- Discount of ~12%
Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has a 1st or 2nd position in Canada and a sizeable business in the U.S. (about 38% of net income). It focuses on retail banking, which is perceived to be lower risk.
TD’s recent performance has been stable. In the first 9 months of fiscal 2019, TD’s revenue climbed 6.8% to CAD$30.7 billion and adjusted earnings-per-share rose 5.6% to CAD$5.11. The U.S. Retail segment continues to be the key driver of growth. The provision for credit losses ratio was 0.43%, which aligns with the average of the Big Six banks.
TD’s capital position remains strong with its common equity tier 1 capital ratio at 12%, and its shareholders’ equity rose 11% from $78 billion a year ago to $86 billion today.
Strong Dividend Track Record
TD has reached our minimum yield target of 4.1%.
Source: TD Q3 2019 Quick Facts (pdf)
TD stock normally trades at a P/E of 12, which we think is a conservative fair multiple for our estimate of 7% long-term earnings growth. (The bank guides medium-term growth of 7-10%.)
At CAD$72.20, the bank trades at a P/E of ~10.5, which indicates a discount of ~12%.
Source: F.A.S.T. Graphs
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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