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TD Bank: Not A Strong Buy Anymore

Jun. 10, 2020 8:34 AM ETThe Toronto-Dominion Bank (TD), TD:CA15 Comments
Stefan Redlich profile picture
Stefan Redlich


  • The financial sector got hit very hard with the coronavirus crisis following record-low interest rates on the one hand and record-high unemployment numbers on the other.
  • The COVID-19 impact can also be seen as a giant experiment as to how customers react when they have to mostly rely on mobile and online banking.
  • At Toronto-Dominion Bank's current price, there is not much to get excited about the stock given a high degree of uncertainty regarding the economic outlook and the bank's earnings power.
  • Still, I continue to view the bank as a core dividend position in my portfolio. Its yield is still very attractive, but the stock is certainly not a strong buy anymore.

Financial stocks have retreated sharply in recent months and staged an almost epic rally thereafter. Even the biggest banks in the U.S. and Canada have seen their stocks drop to levels that we haven't seen for years.

These were golden buying opportunities, no question. However, the reality today is different. The macroeconomic picture has not significantly improved, yet many financial stocks are only moderately below their pre-COVID-19 levels despite a high degree of uncertainty regarding the economic outlook.

One of these is the Toronto-Dominion Bank (NYSE:TD), which dropped as low $34 in March from around $57 but has staged a very strong comeback to its current level of $48.

TD Bank

(Source: Toronto-Dominion Bank, Miami)

At this price, there is not much to get excited about given record provisions for credit losses and a still-damp economic picture despite the surprisingly strong jobs report last week.

What is going on at Toronto-Dominion Bank?

The Toronto-Dominion Bank, as part of Canada's illustrious Big Five (Bank of Nova Scotia (NYSE:BNS), Canadian Imperial Bank of Commerce (NYSE:CM), Royal Bank of Canada (NYSE:RY) and Bank of Montreal (NYSE:BMO)), has a history of uninterrupted dividend payments dating back to the year 1833.

It currently trades at a P/E of 12 and a dividend yield around 4.6%. As other financials, the stock sold off heavily in mid- to late-March, before rebounding and staying in a price corridor. Following a breathtaking post-earnings rally in June, the stock shot up to $48 and is up over 20% over the last month.

While the stock markets are always looking forward, the reopening "hopium" expectations have gone too far too quickly, in my view, and investors should not forget about the fundamentals.

The latest results from its Q2 2020 earnings report missed expectations, although that, per se, is not a negative thing given

This article was written by

Stefan Redlich profile picture
I am working as a Business Analyst and Data Engineer in Germany and have started to build up a portfolio focused on Dividend Growth, both on the high and low-end yield spectrum. Primary focus is on Blue Chips with long-reaching dividend track records. I have been investing for 2 years and have been standing on the sidelines for way too long before. I love developing spreadsheets in Google and Excel to analyze financial performance and integrate these two sources with each other!Happy to connect on the various channels!

Analyst’s Disclosure: I am/we are long TD, BNS, RY, CM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (15)

I have been a USA small business banking customer of TD for years. From that perspective it is an incredibly well managed bank.
Baldy2000 profile picture
Stephan, good article on one of my larger holdings. I will quibble with you the current yield is not juicy anymore. The last time, before Covid, TD yield was at 4.6% was back in 2002. So, from a yield basis the yield is still juicy, but not the extreme level it has been in Covid period. However, I will probably not add to my position until $45 US or lower. BTW, at today's close, TD yields approx 4.97% taking into account the increasing value of the Canadian $. But one needs to be careful, as currency swings can greatly effect the stocks yield in terms of the US dollar. I also hold, RY. Cheers
The author's view that the stock is not worth buying but is worth retaining as a "core position" because of its dividend is incoherent.
Particularly as your profile does not suggest that you are a Canadian resident shareholder, the fact that you keep this name in your portfolio as a dividend position in itself is a significant measure of confidence in it, considering all the other available banks worldwide. So this looks like more of a trading call and an investment-timing call: no fresh money just now. The fact is that TD is one of the two or three best names on the TSX (alongside, say, BAM) and the best managed of the Big 5 Canadian banks, It is a staple in Canadian portfolios, and a reliable long-term investment. Even at its present price,-- with financials being especially volatile in current markets,-- it would perform well in the long term.
Long Time Running profile picture
Anywhere near water, prime real estate will be expensive, there is no housing bubble. Toronto and Vancouver, similar to New York or San Francisco, it is what it is.

Canada is one of the strongest economies of the G7 with the best debt to GDP ratio, highest credit rating at AAA, a strong resource base (commodity recession should be over) and a diversified economy.

The fact the world just took out a 50 year mortgage to pay for the pandemic should bring needed consolidation, rationalization, efficiency to the world economy.

Long BNS, TD, RY.
fintax profile picture
"The fact the world just took out a 50 year mortgage to pay for the pandemic should bring needed consolidation, rationalization, efficiency to the world economy."
I love how you expressed that! Yep, long all 3, also....
The yield curve has actually steepened in the past month. Banks make their money on the difference between the short and long ends of the curve. This is a big reason for the rise in prices recently.
Dividend and yearly increases should keep investors happy with TD and other Canadian banks. Be patient.
Excellent article and can apply to any bank analysis. Stephan hit on a good point: housing. We don't know yet whether things have stabilised and it all comes down to employment. If main income earners remain unemployed for many months, you will get a crash as in the 2008-2008 housing bubble.

By the way, all Canadian banks are in the same boat: the Canadian market is saturated, and fragmented, expansion outside is being hit by global recession, and wealth management has exhausted the "reserves". A fragmentation in world trade will blunt Canadian banks' expansion outside Canada. What's left? Banks will have to pay out more dividends, while ensuing capital is strong. The dividend payout is keep the stock prices up and their Tier 1 capital.
V Bhalla profile picture
TD is #1 buy amongst the Big 5 banks in Canada.
Stefan Redlich profile picture
Well, I actually liked BNS results much more but apart from this TD is no strong buy for me at this stage anymore but certainly not a SELL either, like never.
V Bhalla profile picture
BNS is #2 buy. 3 RY, 4 CM & 5 BMO. Long TD, BNS and BMO
craftbrewinfo profile picture
TD has been paying dividends for 163 years and counting. Think of all the global chaos, world wars and other events that have occurred during that time? I feel safer investing my hard earned monies in Canadian banks versus US Banks, and TD is my main position, Long TD
Stefan Redlich profile picture
Absolutely, it is an impeccable dividend track record. Looking forward to end of July to get the next payment :)
Gary Jakacky profile picture
I like owning stock in TD in solidarity with my Canadian brethren; I worked on a ranch up in Alberta a few summers and have fond memories of the experience. To me TD is a play on a strong natural resource based, but still diverse, economy; as well as a hedge against inflation since the price of natural resources would rise. (not necessarily oil and gas, though).
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