Is TD Bank Stock a Buy Before Earnings?

With TD Bank (TSX:TD)(NYSE:TD) due to report earnings on Thursday for its most recent quarter, the question is: Should you buy?

| More on:

It’s a big week for the Big Five. Some of the country’s biggest bankers are turning in their reports. Canadians are about to get a better picture of the state of the nation’s largest moneylenders. As well, the reports from the likes of Scotiabank and BMO – both of which are reporting Tuesday – will offer insight into the state of the economy. This Thursday will see TD Bank (TSX:TD)(NYSE:TD) spill the beans.

A big week for bank stocks

It’s important to remember that names such as Scotiabank and TD Bank are part of the backbone of TSX dividend investing. Along with such assets as utilities stocks, Canadian banks offer some of the most popular choices for passive income nationally. This week could be therefore be crucial to the outlook for dividend investing in this country.

TD Bank is in a unique position. It can attribute much of its recent growth to its operations south of the border. That makes it something of a bellwether for Canadian sentiment when it comes to the American economy. Investors looking ahead to the U.S. election are already figuring out how to play American-exposed banks. Politics aside, the election is bound to generate momentum – in one direction or another.

Investors should note that Canada’s banks haven’t don’t so well on the markets on average over the last 12 months. TD is still negative by 14% year on year. This is comparable to some losses in the energy sector, which has seen oil-weighted names weighed upon by the pandemic. Eventually, investors may start to decide that banks and oil producers are two sides of the same coin, weighted by similar factors.

TD Bank stock has a few things going for it, though. First off, its 5% dividend yield is just right for the long-term investor. Dividend payments have been reliable historically, and coverage of 53% suggests a low-risk distribution. This latter facet of TD Bank stock also leaves room for a growing dividend yield, making this a suitable pick for buy-and-forget investors.

Valuation could be a little better, with a P/B ratio of 1.3 just over the average – Canadian banks on average trade at book price. Scotiabank, for instance, trades at book value.

A mix of beats and misses?

Let’s review some of those estimates. TD Bank is expected to see a year-on-year earnings decline of 42.5%. Revenue is expected to improve by 1.5% compared with the same quarter last year. Consensus ratings are midway between a “hold” and a “moderate buy” at the moment. Investors should consider waiting for the dust to settle before beginning, or adding to a position.

One thing that this round of earnings reports has going for it is that expectations are going to be low. This should benefit TD Bank’s share price, since it should be fairly easy for the Big Five moneylender to beat estimates.

At the end of the day, it’s not just performance in any given quarter that counts – it’s what analysts expected that performance to be. Given an uneven economy, though, investors should expect a mix of beats and misses from TD Bank.

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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Bank Stocks

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

data analyze research
Bank Stocks

Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has taken a beating over the last year. Where will it be in another five?

Read more »

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 »