Shares of Toronto Dominion Bank (TSX:TD) fell last week on news that the bank was subject to a probe by United States law enforcement. The probe would be looking at internal controls tied to the laundering of hundreds of millions of dollars from illegal drug sales.
Shares of the stock dropped by about 4% to end out the week. This led to the dividend yield rising past 5%, at 5.14% as of writing. This is far higher than its five-year average of 4.13%. So, is it time to buy?
Image source: Getty Images
About TD stock
First, let’s get into TD stock as a company in the first place. The bank is part of the Big Six Banks, holding the second position of largest market cap among the bunch. It can trace its roots back to 1855 with the establishment of the Bank of Toronto. Over the years, it has expanded through mergers and acquisitions, including the merger of the Bank of Toronto and The Dominion Bank in 1955. Today, TD Bank Group is the result of several mergers and acquisitions, including those with Canada Trust in 2000 and Commerce Bancorp in the United States in 2008.
The U.S. business has been a strong presence in the company’s history. TD stock remains one of the top 10 banks in America, and that’s saying something. Its retail products, loan options, credit card partnerships and more have all placed it among the best in the business. So, why has there been weakness?
What happened
There have been issues with money laundering among banks for a while now, with TD stock coming up several times. The U.S. Department of Justice launched an investigation after finding that drug-money laundering was underway in New York and New Jersey. What’s more, there have even been allegations of bribing among TD stock employees.
It’s not the only issue TD stock is going through either. The company is facing three probes by U.S. regulators from the handling of “suspicious” customer transactions. It’s now set aside $450 million for just one of these probes.
The question is whether TD stock can come back from this. Not necessarily whether they should, but if they can. And the question there seems to be a pretty profound yes.
Should you buy?
I would certainly hold off for now when it comes to investing in TD stock. That’s because with $450 million set aside for just one of these probes, it seems as though it could cost billions once everything is said and done.
This will take away from the TD’s bottom-line as well as top-line growth while the company works with law enforcement. From there, it will have to assure the public that something like this can never happen again. All this takes time, and money.
But once the dust settles, TD stock will remain as it always has been – a top Big Six Bank with a stable dividend yield. The bank will just have to hope that investors will remain patient.
