Four Reasons to Invest in TD Bank

On Wednesday I initiated a full position in Toronto-Dominion Bank (TD). TD will now make up about 10% of my non-registered portfolio. Since TD is such a widely held stock in a widely followed industry in Canada, instead of a detailed post describing my thoughts on TD, and rationale behind the purchase, and valuation, I thought I would briefly list the most important factors that went into this decision.

My decision to invest in TD for the long-term right now was based on the following considerations:

It is the industry leading retail bank in Canada, operating within an oligopoly. I am attracted to retail banking as it tends to lend itself more towards consistency, loyalty, brands, and repeatable revenue and earnings.

The credit crisis has improved the valuation of all banks. To a certain degree the babies were thrown out with the bathwater, TD has little exposure and is 15% off it's 52 week high.

The above point is true to a large extent with U.S. banks. I'd like to entrust TD to acquire for me skillfully, and take advantage of good value in U.S. institutions.

TD has a great history of earnings and dividend growth, and currently sports a dividend pay out ratio of only 38%, and a solid yield of 3.7%.

As always, opinions and comments are appreciated.

Comments

[cloclo:]

The problem with TD bank stock is that it's a Canadian stock whose dividends to U.S. stockholders are subject to a Canadian withholding tax of 15%. Thus American stockholders see only 85% of their dividend. It is true that the U.S. allows a foreign tax credit which can alleviate that burden, but unless the annual dividend is under $600 (USD, joint return) the credit is much less than the tax and requires the completion of yet another tax form (form 1116).

2008 Apr 03 08:39 AM

[cloclo:]

Let me correct that! It's not the annual dividend that has to be under $600 (USD), it's the Canadian tax. Thus until the TD annual dividend reaches $4000 (USD), the investor loses 15% to the Canadians but gains it back from the IRS. I might add that TD seems to be an extremely well managed bank. One interesting aspect of this stock is that on days when all the U.S. stocks go down it will quite often go up, providing a contrarian glimmer of hope.

2008 Apr 03 09:46 AM

[Victhom:]

"It is the industry leading retail bank in Canada, operating within an oligopoly"

Wrong the Retail leading bank in Canada is ROYAL BANK OF Canada (RBC GROUP) RY-Toronto and RBC is just loading up caribean banks and now moving to Chile..London..India..... US...not bad...

www.rbc.com/aboutus/in...

2008 Apr 03 03:36 PM

[Victhom:]

About RBC
RBC (RY on TSX and NYSE) is Canada's largest bank as measured by assets and market capitalization and one of North America's leading diversified financial services companies. In the United States, RBC provides personal and commercial banking, wealth management, insurance, corporate and investment banking and transaction processing services to about two million clients through RBC Centura, RBC Insurance, RBC Liberty Insurance, RBC Wealth Management and RBC Capital Markets. The company employs approximately 70,000 full- and part-time employees who serve more than 15 million personal, business, public sector and institutional clients throughout offices in North America and 36 countries around the world. For more information, please visit rbc.com.
SOURCE RBC

2008 Apr 03 03:39 PM

[jse17:]

“Wrong the Retail leading bank in Canada is ROYAL BANK OF Canada (RBC GROUP) RY-Toronto and RBC is just loading up Caribbean banks and now moving to Chile..London..India..... US...not bad...”

Great but the ultra astute analyst, Steven Leeb of The Complete Investor, recommends TD and not RBC! I will permit others to engage in a “urinating” contest regarding the preeminent Canadian Bank status.

2008 Apr 04 08:24 PM

[Football Geek:]

I own both banks, and each has done very well. Both have invested in the US banking / investment sector, and will look to grow that area in the future. While RY is bigger than TD, TD seems to have escaped the sub-prime mess.
TD has the best banking hours of anyone, and that should be a growth
area with the aging population who prefer to bank by using the teller, and not on-line or at the atm.
TD also increased their dividend last quarter, while RY chose not to.

2008 Apr 07 01:07 PM

[moneygardener:]

I own Royal as well. They are both great companies but I believe TD is a better Canadian retail bank than Royal.

2008 Apr 08 01:42 PM