TD Bank (TSE:TD) Dividend & Stock Analysis

Posted on October 9, 2020 by Dan Kent
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This company is the definition of a blue chip Canadian dividend stock, and it’s pretty rare for a Canadian’s portfolio to not hold this bank stock outright or in some sort of fund.

Toronto Dominion Bank (TSE:TD) is one of the largest companies in the country and is Canada’s second largest bank in terms of market capitalization.

As we head further into COVID-19, things have changed for financial companies. And a lot of investors simply don’t know what to think of Canada’s financial institutions as these companies are typically difficult to analyze.

So many investors who are just learning how to buy stocks are asking is TD Bank’s dividend safe, or will they be first in line for a potential dividend cut? Lets take a look.

TD Bank (TSE:TD) stock and dividend analysis

Toronto Dominion Bank operates in 3 primary business segments. Canadian retail banking, United States retail banking, and wholesale banking. The company has a strong presence south of the border, with a particularly strong presence in the Northeastern part of the United States.

The company has nearly 90,000 employees and despite its Canadian roots, has actually been deemed one of the most convenient banks in the United States for multiple years running. On a North American level, Toronto Dominion Bank is the 5th largest bank by total assets and the 6th largest by market capitalization.

The company is making heavy investments into digital banking, and near the end of 2020 had amassed nearly 14.5 million active digital customers.

In fiscal 2019, the company is expected to generate 55% of its earnings from Canadian retail, 31% from U.S. retail, and just under 10% from TD Ameritrade, which it has a 42% ownership stake in. This is the highest dependency out of all the Big 5 banks on the United States, and has been partly why TD Bank has suffered in terms of recovery due to COVID-19. But, more on that later. Lets get to the dividend.

TD Bank’s dividend – is it safe?

There’s no questioning the fact that Toronto Dominion Bank’s dividend is one of the best in the financial sector. Excluding high flying alternative lending stocks like Goeasy Ltd and Equitable Bank, TD Bank has one of the fastest growing dividends in the sector with a 5 year annual dividend growth rate of 9.45%.

The next closest bank in terms of dividend growth is Royal Bank at 7.50%. In terms of dividend growth streaks, TD Bank is much like all other Big 5 banks in the fact it started raising dividends again after the economy had recovered from the 2008 financial crisis. So in terms of dividend streaks, there really isn’t a major bank that stands out.

I’m an advocate for looking deeper in terms of payout ratios than just earnings, but with financial institutions it’s a little bit tricky. They operate with negative cash flows, as their business models require significant cash outflows in the form of loans. So, this is one of the rare sectors I’ll simply look at dividend payout ratios in terms of earnings.

Take a look at the chart below, which highlights 4 major bank’s dividend payout ratios plus National Bank. I’ve kept Canadian Imperial Bank of Commerce out of this, as the chart is skewed when I add them in due to a technical glitch, and it’s difficult to visualize.

Charts provided by StockRover. Check out Stockrover Here!

TSE:TD dividend payout ratio vs other banks

If we look at TD Bank’s payout ratio, we can see that prior to COVID-19, much like the other big 5 banks they hovered in the low to high 40% range.

However, as COVID-19 wreaked havoc on the economy, payout ratios skyrocketed due to a drop in earnings and an exponential increase in PCLs (Provisions for Credit Losses).

They’ve stabilized now, with lower PCLs and better than expected earnings from banks. TD Bank’s dividend payout ratio currently sits at 65.29, which is the 2nd highest payout ratio out of the banks on that chart, but still one I’m fairly comfortable with.

In terms of TD Bank’s dividend, this is a pretty good opportunity to grab a 5%+ yielding stock that is likely to return to consistent dividend growth as soon as this pandemic is over.

Strict requirements for banks like TD Bank to stop raising dividends will keep it safe

It’s almost a guarantee that TD Bank’s 9 year dividend growth streak will be coming to an end in 2020, as financial companies have been told not to raise dividends in fiscal 2020 as a measure to protect liquidity.

It’s not a requirement they must follow, but one they inevitably will. Those with a glass half empty attitude will see this as a negative, but I myself see this as an intelligent move to protect both Canadian customers and shareholders.

The 5 major Canadian banks didn’t cut dividends during the 2008 financial crisis when institutions were slashing them at a rapid pace, and I expect these restrictions placed on dividend growth will allow them to maintain the status quo through the COVID-19 pandemic.

TD Bank valuation and recovery

It’s a fact, Toronto Dominion Bank stock is extremely cheap, at least when comparing it to historical numbers. Forward price to earnings of 11.1 are below the company’s 5 year historical average of 11.5 and on a price to book and price to sales basis, TD Bank hasn’t been this cheap since the financial crisis in 2008.

So what’s holding the company back? In my opinion, it’s more than likely due to the pandemic still wreaking havoc in the United States, as it is now the worlds hotbed when it comes to COVID-19.

TSE:TD 5 year dividend adjusted returns vs other banks

Market Cap: $113.37 billion
Forward P/E: 12.56
Yield: 5.06%
Dividend Growth Streak: 9 years
Payout Ratio (Earnings): 59.07%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 10.73%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

If we look at returns in 2020, TD Bank is falling behind the likes of Royal Bank, CIBC, and National Bank.

Reasonings for The Bank of Montreal and Scotiabank’s underperformances are a whole other article in itself, but we can see that TD Bank is lagging 2 of the Big 5 banks and the TSX, which year to date has lost around 8% at the time of writing.

Prior to COVID-19, TD Bank was in my opinion one of the best dividend stocks to own in the country, and the best option out of the Big 5 banks.

The pandemic has changed this, as it’s clear having too much of a reliance on a single economy can result in underperformance, especially when that country is struggling in the case of the United States. Royal Bank, due to the fact it has the most global exposure out of any Big 5 bank here in Canada, is actually outperforming the TSX in terms of recovery.

The pandemic did not infect countries on a simultaneous basis. Countries are recovering at different speeds and periods of time, and Royal Bank has been the beneficiary of this, whereas Toronto Dominion is still dealing with the bulk of its revenue coming from the current epicenter of the virus, the United States.

Dividend growth will halt for TD Bank stock, but it’s still a strong option

We can’t forget that prior to the pandemic, Toronto Dominion bank was one of the fastest growing Big 5 banks in the country, and had the fastest growing dividend.

Would I be purchasing Toronto Dominion Bank stock over Royal Bank (TSE:RY) right now? Probably not. I was extremely impressed with Royal Bank’s earnings and perseverance through all of this. But, just because TD Bank is my second pick when it comes to bank stocks doesn’t mean I think it’s a poor option.

If you’re looking to purchase the stock, just be patient. We may be looking at 2022 or 2023 before we get back on track, and with regulators suggesting Canadian financial stocks hold off on dividend raises, these stocks may be stuck in limbo for a bit.

Sure, the pandemic has changed things, but I have zero doubt once the dust has settled TD Bank will continue to be one of the best operated banks in both Canada and the United States.




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Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.