Here’s a Well-Diversified Top Stock for Income Investors

Income-seeking investors looking for a well-diversified top stock to add to their portfolio should look at Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

| More on:

How diversified is your portfolio? Income-seeking investors have plenty of options to choose from on the market. One such option, particularly for those looking for a well-diversified top stock, is Canada’s big banks.

The banks have something to offer all investors, but Toronto-Dominion Bank (TSX:TD)(NYSE:TD) in particular has a unique appeal that its peers cannot yet match.

What does TD offer that its peers can’t?

Canada’s big banks are very similar. In some ways, they are so similar that it becomes hard to spot the differentiating factors to appeal to investors. In the case of TD, that differentiating factor comes down to growth.

Like most of its peers, TD turned to the U.S. market for its primary focus of international expansion. Where TD differed from its peers is the approach it made to that expansion.

In the years following the Great Recession, TD acquired several smaller banks along the U.S. east coast. Those banks were then rebranded and stitched together into a single network under the name TD Bank.

Today, TD has become one of the 10 largest banks in the United States. The bank has over 1,100 branches in a network that now stretches from Maine to Florida. That puts TD well ahead of its Canadian big bank peers in terms of U.S. market penetration.

If that weren’t enough, TD is also the largest shareholder in the Schwab Corporation, one of the largest securities brokerage companies in the U.S.

In other words, TD is a well-diversified top stock with massive growth potential.

What about income?

Just when you thought TD couldn’t get any better, let’s take a moment to talk about dividends.

TD offers investors a quarterly dividend. That payout currently works out to a yield of 3.38%, which isn’t the highest return among Canada’s big banks. But, as with all things TD, there’s major upside waiting for investors.

At the onset of the pandemic, Canada’s banks were barred from hiking their dividends. Instead of increasing payouts, the banks were setting aside cash for loss provisions stemming from the pandemic.

Fortunately, it didn’t get as bad (at least for the banks) as many had speculated. Government-assistance programs provided liquidity to businesses and individuals to prevent a worst-case scenario from occurring.

Now that many of those concerns have been alleviated, banks are once again free to hike dividends. The only difference is that banks are now sitting on a mountain of cash. For investors, this means that we could see a dividend hike announcement coming later this month. Additionally, if the banks are looking to return to prior payout levels, that upcoming hike could be north of 20%.

Finally, keep in mind that TD Bank has been paying out dividends to investors for well over a century, and the bank will be eager to return to that prior cadence.

This factor alone furthers the view that TD is a well-diversified top stock for income investors.

Final thoughts on this well-diversified top stock option

There’s no such thing as a stock that doesn’t have at least some risk. In the case of Canada’s big banks, that risk is very often minimal. That’s thanks to the regulated nature of the segment, particularly when compared to the riskier but higher-growth U.S. market.

The best of both worlds — a well-regulated baseline with superb growth potential is what TD Bank can offer investors. Not only that, but the bank also offers a superb and growing dividend, which should appeal to nearly every investor.

In short, buy it, hold it, and watch it (and your income stream) grow.

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.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Demetris Afxentiou owns shares of The Toronto-Dominion Bank. The Motley Fool recommends Charles Schwab.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

A meter measures energy use.
Dividend Stocks

Is Fortis Stock a Buy, Sell, or Hold for 2025?

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

The Perfect TFSA Stocks for Long-Term Growth

Two industry heavyweights are perfect stock holdings in a TFSA for long-term money growth.

Read more »