The TSX Composite Index is currently trading at its all-time highs, driven by optimism surrounding the recent interest rate cuts in the United States and Canada. These rate cuts have the potential to support economic growth and boost corporate earnings in the years to come. Amid this rare combination of declining interest rates and record-high stock levels, I find large-cap dividend stocks, like Toronto-Dominion Bank (TSX:TD), even more attractive to buy now and hold for the long term.
In this article, I’ll give you three compelling reasons why TD Bank stock could be a buy at current levels, especially if you want to benefit from a perfect blend of dividend income and potential growth.
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Impressive financial growth despite challenges
The first reason TD Bank stock currently stands out is its ability to deliver strong financial performance, even in a difficult macroeconomic environment. In the third quarter (ended in July) of its fiscal year 2024, TD posted a 3% YoY (year-over-year) increase in its adjusted earnings to $2.05 per share despite a hefty provision for its U.S. anti-money-laundering (AML) investigation.
Not only did it maintain adjusted earnings growth last quarter, but it also managed to post a solid 8.9% YoY rise in its revenue to $14.2 billion, thanks to continued strength in its core banking operations, particularly in the Canadian market. Despite the challenges posed by the AML investigation and a difficult macroeconomic environment, TD Bank has shown it can still grow revenue and protect its earnings.
Strong market position in Canada
TD Bank’s continued dominance in the Canadian market is another key reason why it could be a great buy for long-term investors. The bank’s Canadian personal and commercial banking operations delivered record results in the July quarter, with the segment’s revenue rising by around 9% YoY to hit $5 billion. Similarly, the segment’s net profit also grew by 13%, reflecting the strength of its customer base and leading market position.
One of the key drivers behind this robust performance was TD’s successful expansion of its credit card business, which now has over 8 million active accounts. Besides credit cards, the bank is also a leader in real estate secured lending, making it a go-to choice for Canadians looking to finance their homes. With a robust deposit franchise and continued innovation in products, TD could continue to maintain its leadership in the Canadian banking sector, which has the potential to drive its share prices higher.
Sustainable dividends and attractive entry-level
While the TSX Composite benchmark has surged by over 14% year to date, TD Bank stock currently trades at $85.68 per share with a market cap of $150.3 billion, without any notable change in 2024. At this market price, it offers an impressive 4.8% annualized dividend yield, and its strong financial base gives it the ability to continue raising its dividends in the future.
While concerns about the ongoing U.S. AML investigation may be weighing on TD stock, these temporary challenges are unlikely to significantly affect its long-term outlook. In fact, these short-term headwinds could present a good opportunity for TSX investors to buy this fundamentally strong bank stock at a bargain.
