Toronto-Dominion Bank: What Is Going on?

Although Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has been dealing with some public relations problems, there is an opportunity to get shares 7% cheaper.

| More on:
The Motley Fool

The Big Five have a reputation for being stalwart investments. They control significant market share in Canada, and they have historically provided strong returns for their investors. But from time to time, there is a hiccup and the stocks react poorly. That happened to Toronto-Dominion Bank (TSX:TD)(NYSE:TD) in March, and the bank has been fighting to recover.

In March, CBC released a report that TD employees were pressured to meet high sales revenue goals and sometimes went so far as to break the law. Employees have admitted to increasing people’s lines of credit without telling customers, which violates the Federal Bank Act. Naturally, investors reacted poorly; shares dropped over $4 in one day. Even now, shares are still down 7% from where they were before the report was released.

What likely had to be going through some investors’ minds is that this would be a repeat of what happened to Wells Fargo & Co (NYSE:WFC). In 2016, Wells Fargo was fined by the Consumer Financial Protection Bureau for opening more than two million bank accounts and credit cards without customers knowing. This became a public relations fiasco for the bank so severe that CEO John Stumpf resigned.

Naturally, TD Bank did an investigation into the matter, and CEO Bharat Masrani said there was “…no widespread problem with people acting unethically in order to achieve sales goals.” Whether that’s true or not, I don’t know (I’ve never been one to trust an internal investigation).

However, if we look at how Wells Fargo got hit, I don’t see much more downside for TD Bank, which provides an opportunity for investors who are willing to go against the grain and pick up shares when others are afraid of the stock.

TD Bank announced its second-quarter results in May, and they were strong. Analysts had been expecting post earnings of $1.24 per share, up from $1.20 from Q2 2016. However, the company surpassed that, hitting $1.34 per share. TD Bank’s net income was $2.5 billion, up from $2.1 billion in Q2 2016.

What is particularly exciting is that TD Bank’s U.S. segment continues to experience tremendous growth, with 18% in the quarter. I anticipate this will continue to grow as the United States increases interest rates. If the spread is greater for the banks, they’re able to generate greater amounts of money from loans. Further, the increased rates will allow them to increase their savings interest rates, which will provide more capital for loans.

On the dividend end, TD Bank provides a lucrative opportunity to earn $0.60 per share. The bank increased the dividend by 5% in the beginning of the year, continuing a tradition of slowly but surely increasing the yield.

Investors who are seeing these cheaper shares as an opportunity for income portfolios are right. Had you purchased shares when they were $70, your yield would be 3.4%. Now it’s 3.68%. Although it is not significant, on a $50,000 investment, your income would be $1,818.18 per year if you had waited versus $1,714.29 had you bought when it was $70.

The reality is simple: TD Bank was hit with a public relations fiasco and, for the most part, it seems to be recovering. However, this fiasco presented an opportunity for investors to pick up shares at a discount. And even if you act today, you can get them for 7% less, allowing you boost your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

More on Bank Stocks

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »

calculate and analyze stock
Bank Stocks

4% Dividend Yield? I Keep Buying This Dividend Stock in Bulk!

If you find the perfect dividend stock, you never have to worry about investing again. And that's what you get…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

Let's dive into whether Canadian Imperial Bank of Commerce (TSX:CM) is a top buy, sell, or hold right now.

Read more »

Man data analyze
Bank Stocks

Where Will BNS Stock Be in 3 Years?

Bank of Nova Scotia is primed for growth with a bold U.S. expansion, steady dividends, and a value focus that…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Stocks for Beginners

TFSA 101: Earn $1,596.60 per Year Tax-Free!

Investors don't have to buy some risky stock if they want tax-free high income. Instead, buy this top stock instead.

Read more »

data analyze research
Bank Stocks

TD Bank: Buy, Hold, or Sell Now?

TD is underperforming its large Canadian peers this year. Is a rebound on the way?

Read more »

data analyze research
Bank Stocks

A Dividend Bank Stock I’d Buy Over TD Stock Right Now

TD stock has long been a strong dividend and growth provider. However, recent issues could cause investors to think twice.

Read more »