Toronto-Dominion Bank Down Over 7% Since March: Worth a Buy?

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has given up value due to bad press. Take advantage of this and load up on cheaper shares.

| More on:
The Motley Fool

Bank stocks are supposed to be some of the top investments you can make. Because they provide a wide variety of financial products, they are able to extract fees and revenue from their customers repeatedly. In many respects, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the top bank in Canada.

But in March, CBC released a negative report about TD and that sent shares spiraling down. By the end of May, the company had given up nearly 10% of its value, which is a huge hit for a major financial institution. Since then, it has been slowly rising, but it’s still down over 7% from its high.

Is the bank worth investing in, or should investors avoid it?

The reason the stock got hammered so hard was due to a report that TD pressured its employees to meet high sales revenue goals. This resulted in the employees sometimes going too far with their sales tactics and occasionally breaking the law. In many instances, employees admitted to increasing people’s lines of credit without alerting them — a clear violation of the Federal Bank Act.

The actual negatives for TD were small from an earnings perspective, but it became a huge public relations hit. Bad press isn’t great for banks, and it reminded investors of the Wells Fargo & Co (NYSE:WF) fiasco in 2016. In that instance, the Consumer Financial Protection Bureau fined Wells Fargo for opening more than two million bank accounts and credit cards without customer knowledge.

When Wells Fargo was hit with a US$100 million fine, the stock also dropped by over 10%. But since then, the company has appreciated by 20%. This just goes to show that these bad hits are sometimes short-term pain, but in the long term, these banks print money, so investors are going to come back.

TD is the exact same way. It’s true that shares are down by 7%, but when we look at how the company is doing, the reality is simple: investors will be back, and they will push the stock higher. So, you should be greedy while major investors are afraid of the company. And here’s why…

In Q2 2017, TD delivered $1.34 per share in earnings, beating investor expectations of $1.24 and crushing the previous year’s earnings of $1.20. Net income was $2.5 billion, up from $2.1 billion in Q2 2016. South of the border was the star with an 18% boost in growth. This should only increase as interest rates in the United States grow, providing larger spreads for the bank to generate money.

TD then turns around and returns that money to its investors.

In the beginning of the year, the company boosted the dividend by 5%. Investors now earn $0.60 per quarter. Thanks to the drop, investors are now getting a lucrative 3.69% yield. So long as earnings continue going up — I see no reason why that’ll change — investors should expect future dividend increases as the years go by.

Investing in TD provides a smart investing lesson. The market is a living creature. Sometimes it is exuberant, pushing companies high. Sometimes it is terrified, pushing companies low. These movements are not based on the company’s numbers, but on emotions. If you can take advantage of that, you can load up on cheaper shares and ride the wave up.

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

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »

stocks climbing green bull market
Bank Stocks

2 Undervalued Canadian Bank Stocks to Buy Now

Here's why investing in undervalued Canadian bank stocks such as BMO and EQB can help you beat the TSX Index.

Read more »

money goes up and down in balance
Bank Stocks

Is National Bank of Canada Stock a Buy for Its 3.4% Dividend Yield?

National Bank of Canada stock has surged over 1,000% in the past two decades, if we adjust for dividend reinvestments.

Read more »