Toronto-Dominion Bank (TSX:TD) stock has done remarkably well over the decades. Despite taking a big hit in the 2008 market crash, TD stock has delivered a 294% price return and a 602% total return in 15 years. Many top banks’ shares still have yet to recover from the beating they look back in 2008/2009, when the financial edifice of the world nearly came tumbling down. Many banks failed — TD was never even close to becoming one of them.
The question is, will TD Bank’s future be as good as its illustrious past? With a history tracing all the way back to 1855, it would certainly seem to fit the definition of a mature company. That argues for slower growth going forward. However, as you’re about to see, TD Bank still has some aces up its sleeve.
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Why banks can still be good investments in 2024
One of the main arguments people use against investing in bank stocks is, “They’re too old and will be obsolete soon.” Two out of the three companies that eventually became TD Bank date back to the 1800s. So, you really have to wonder how this ancient company can still be relevant.
In business classes, we’re taught that companies go through predictable cycles of growth, maturity, and decline. This model is reasonably accurate for individual lines of business, but it needn’t be true on a whole firm level. In financials, it needn’t be the case at all. There’s an Italian bank that’s 552 years old and still a going concern!
In general, professional services companies like banks and construction contractors can stay relevant longer than manufacturers, because they don’t risk obsolescence. Banking will never go away; it will just evolve. This is one reason to think that TD Bank at least has a shot at a future as good as its recent past.
Revenue and earnings still rising
As for signs that TD’s future actually will be as good as its past, we could turn to its most recent earnings release. TD’s first-quarter release beat estimates of revenue as well as earnings per share (EPS), boasting the following metrics:
- $13.71 in reported revenue, up 12.2%. “Reported” means calculated by Generally Accepted Accounting Principles.
- $13.77 billion in adjusted revenue, up 5.3%. “Adjusted” means calculated by the company’s own preferred accounting methods.
- $1.55 in reported earnings per share, up 89%.
- $2 in adjusted earnings per share (EPS), down 12.3%.
There’s a fair amount of inconsistency between the reported and adjusted earnings figures. That’s due to a conscious choice TD made to include various restructuring charges in adjusted earnings, which lowered them compared to reported earnings this quarter but elevated them in the same quarter a year before. Basically, it was a wash.
Could there be a crisis on the horizon?
The one thing you want to be on the lookout for with banks like TD is the dreaded financial crisis. We had a big one in 2008 and another just last year. When banks get into trouble (i.e., fail), it can sometimes cause contagion that can spread to other banks. It’s very important for banks to practice sound risk management. Fortunately, TD appears to be doing so, with a 13.9% common equity tier-one ratio and excellent liquidity coverage. I’d say its dividend will still be paid without any problems five years from now. As for the stock price — we’ll just have to wait and see.
