Recent Buy – TD Bank

TD Bank

February is turning out to be a month where I am putting a lot of cash to work. I hate seeing cash sitting there in the investment accounts doing nothing rather than being invested and working for me. A cornerstone of growing wealth and passive income over the years via dividend growth investing is to make my cash work for me, let it stay invested, compounding over time and avoid frequent trading in and out of positions. In staying true to tradition, I have continued putting the cash the work by investing in the 25th company of the portfolio.

I initiated a new position in Toronto-Dominion Bank (TD.TO) with 25 shares @ C$55.41. The company yields 3.38% adding $47.00 to my annual passive income. This will be the second Canadian bank joining the ranks of Bank of Nova Scotia (BNS) in my portfolio.

Corporate Profile

From Yahoo! Finance:

The Toronto-Dominion Bank, together with its subsidiaries, provides financial and banking services in North America and internationally. The company operates through Canadian Retail, U.S. Retail, and Wholesale Banking segments. The Canadian Retail segment offers various financial products and services, as well as telephone, Internet, and mobile banking services to approximately 15 million personal and small business customers through a network of 1,165 branches and 2,867 automated banking machines in Canada. This segment offers financing, investment, cash management, international trade services, and day-to-day banking needs to medium and large Canadian businesses; financing options to customers at point-of-sale for automotive and recreational vehicle purchases through its auto dealer network; credit cards; direct investing, advice, and asset management services to retail and institutional clients; and home, auto, credit protection, travel, and life and health insurance products, as well as credit card balance protection products through direct channels. The U.S. Retail segment provides retail and commercial banking services, as well as wealth management services in the United States. This segment offers its financial products and services through a network of approximately 1,318 stores located along the east coast from Maine to Florida; telephone, mobile, and Internet banking; and automated banking machines. The Wholesale Banking segment provides a range of capital markets, investment banking, and corporate banking products and services comprising underwriting and distribution of new debt and equity issues; advising on strategic acquisitions and divestitures; and meeting the daily trading, funding, and investment needs to companies, governments, and institutions in financial markets worldwide. The Toronto-Dominion Bank was founded in 1855 and is headquartered in Toronto, Canada.

Recent Buy Decision

  • The Canadian banks are some of the safest and best run companies in the world.
  • The bank has a long track record of paying dividends – which have been paid since 1857, and has been raising aggressively after a freeze in dividend growth during the financial crisis.
  • As discussed in this article from two weeks ago, the banking industry is facing a bit of headwinds as the Canadian economy faces commodity price collapse issues and possibly housing bubble in Canada. However, as I highlighted, the banks are well protected and are primed for long term investors to start nibbling.
  • The big banks in Canada (which includes TD) have increased their spread between the overnight interest rate set by Bank of Canada and the prime rate, which means more profits for the financial institutions.
  • TD is the second largest bank with a decent exposure to the US market. According to the 2014 annual report, the geographical diversification is: 65.5% Canada, 27.9% US and 6.5% Other Intl.
  • The fundamentals are attractive with a PE 13.45 and Forward PE 11.4.
  • The next dividend increase announcement is expected either later this month or early next month.

Risks

  • Canada faces recessionary headwinds due to the collapse in oil and commodity prices. As expected, the financial sector will suffer whenever a country is hit by a recession.
  • The fall in energy prices have also resulted in a fall in the Loonie (Canadian dollar). This might affect the earnings reports of the Canadian companies going forward.
  • The Canadian housing market is in a bubble territory according to many economists. If the bubble pops, the banks although protected by the taxpayer backstopped CMHC insurance, will still face some problems going forward. Some initial reports are already suggesting that the correction has started in Alberta, which is the hardest hit province due to the falling oil prices.

Conclusion

Further Reading:

Full Disclosure: Long BNS, TD. My full list of holdings is available here.

35 thoughts on “Recent Buy – TD Bank

  1. R2R,
    I own 25 shares of TD as well, but as I mentioned in your previous article I get 15% foreign tax as I hold it in my regular taxable account so I dont get the whole 3.38% yield. Its my fault with the lack of research, I dont mind paying tax right now its just that I am planning to pay small to no tax once I reach FI since Im going to be in a much lower tax bracket… Any advice?
    Thanks for sharing your recent buy, I kinda hope Im Canadian so I can hoard your Canadian banks lol!
    FFF

    • FFF,
      Other than moving it to a tax-sheltered account, I dont know if there is anything else you can do about it. Do you hold the Canadian listed stock or the US-listed one? I am not very familiar with the US tax system, but I wonder if you get a preferential tax treatment if you own the US-listed stock, because the NYSE listed stock is not listed as an ADR and simply listed as a regular stock. Something to look into. Maybe checking with other investors in the community who are familiar with the US tax system might help. Do you use dividendgrowthforum.com? I usually get a lot of my questions answered there – its a great community, definitely worth checking out.

      Hope that helps
      R2R

  2. Nice purchase! I’ll add this one to the list as the yield looks pretty enticing and I’m on the lookout for some more dividends after some recent purchases that were more focused on growth.

    I spent a lot of capital in February as well. Fun times! 🙂

    • FI,
      Looks like you are wading back into stocks now. I noticed that you are now picking up stocks after a lack of investing in the stock market over the course of last few months (years?). TD is attractively valued and definitely worth a look, but the investment comes with its own risks – so something to watch out for. I have listed a few of the risks in the article, but if the economy hits those troubles, then the banks will face a bit of a correction.

      R2R

    • Hi FerdiS,
      TD is interesting indeed. I think the other banks are trading at a slightly lower PE multiple, but I like TD’s approach for growing their business. Hoping to hold on to this stock forever and add regularly to the position.

      R2R

  3. JC says:

    Thanks for the update on your latest purchase. I’d like to add another financial company or two to my own portfolio and one of the Canadian banks will probably make the cut. Now it’s just deciding which one is the best fit. Which one do you see the most value in currently assuming that you were looking to initiate a position in the Canadian banking industry?

    • JC,
      I think the best value is probably in BNS. Investors are discounting it a lot thinking that since the bank has international operations and have exposure to the oil/commodity market, they will face trouble. As usual, I think the market has overreacted, adn while the stock has recovered quite a bit, its still more undervalued than the rest. I personally really like the fact that they have more international diversification than all other Canadian banks. I would look into BNS closely. Next div increase is expected in March, FYI.

      Best wishes
      R2R

  4. Solid buy. Our TD shares are low compared to other Canadian banks that we own, I’ve been considering getting more of TD but we’re already quite heavily invested in Canadian banks. May decide to buy something else to diversify.

    • Tawcan,
      Its probably a good idea to look elsewhere if you are too heavily invested in the Canadian banks. But I think TD is a strong one with pretty good exposure outside Canada, esp the US.

      R2R

    • Thanks for the words of encouragement, bud. I hear you on wanting to invest – there are so many to choose, but not enough cash. I suppose its good in that sense, so that we are more careful and picking the best of the lot.

      cheers
      R2R

  5. Great buy there. Your entry point is near mine for my position of TD factoring in my position was as a result of a naked put option getting assigned.

    The banks in Canada will continue to do well. If we head into another recession they will likely keep their dividend the same. It would still be better than having moving in a high interest savings account.

    • Thats my rationale as well, IP. We might see a freeze in dividend raises if the recession hit is long and hard. But the 3.6% dividends will keep coming quarter after quarter. Your strategy to hedge using option calls isnt bad either. The chances of the stock prices shooting up are low at this time.

      R2R

  6. Nice buy R2R – Way to add another $47 in passive income…Keep adding to annual income!

    We initiated shares in TD last month. Great value at current prices! We may continue to pick up more shares in a few Canadian banks and hold for the long term. 🙂

    Thanks for sharing your purchase. BTW, we have added this purchase to our Collection of Recent Buys.

    AFFJ

    • Thanks for adding, AFFJ. Thats my main goal with investing – keep my annual income increasing year after year. The markets will give what they will, but keeping a focus on increasing the dividend income helps a lot.

      Good to have you as a fellow investor!
      Best wishes
      R2R

    • I think the dividend increase announcement is imminent – probably days, not months. The last increase was in Feb 2014 and the next earnings report is scheduled next week – which could see an announcement. I have a feeling that the rise will be a bit smaller than that last couple years considering the headwinds persisting.

      R2R

  7. Michael says:

    Great website, I enjoyed many of your articles. What are your thoughts on BMO and its nice dividend? It is expanding into the US and also has less exposure to oil than BNS and Royal Bank.

    Thanks.

    • Michael,
      Welcome and thanks for stopping by and commenting.
      I think BMO doesnt get as much love as it should. Its a great company and very attractive – I am more interested in BMO than RY in fact. They were a bit slower coming out of the financial crisis in getting their books in order, but they are well positioned going forward. Of course there are problems facing the Canadian economy now, which will affect them just as everyone else, but they have a bigger exposure to the US market than the others, which should help them in their P&C and Capital Markets segments.
      Also, they were one of the first banks to expand into China a few years ago, although I havent heard much about their success there – something to look into. The oldest dividend payer in Canadian corporate history (since 1829), whats not to like? 🙂

      R2R

  8. R2R,

    Solid buy!

    TD and BNS are the two Canadian banks I own as well. TD has very solid fundamentals and some US exposure, which helps diversify them away from the Canadian economy. There are some problems with the Canadian economy, however, which may impact them over the near term. Long-term, it seems like a solid play. The Canadian housing market across many metrics reminds me a bit of the bubble that popped here back in 2007-2008. Your rules are a bit different up there, which should help buoy them.

    Best regards!

    • Mantra,
      Those are exactly the reasons I picked TD for the investment. I think its a good starting point and I will keep adding over the months/years as the Canadian economy navigates thru the headwinds. The rules for borrowing are different indeed – so, hopefully we wont see banks going bankrupt as the US banks did.
      Thanks for stopping by and the words of encouragement.
      R2R

  9. Nice purchase R2R. The financial sector is something that continues to in my wishlist. I don’t hold any position in the sector (other than a small position in C). Would like to look at some of these stocks and add to it soon.

    • The Canadian banks offer some great value currently, if you are looking for idea. Also, WFC is the one US bank I own – and cant go wrong with it. Come to think of it, I have to revisit WFC and see if I should add more now…I havent added to WFC in a while now. Its Berkshire’s largest holding, FYI 🙂

      R2R

  10. Hi R2R, after a quick recovery in the banks, it’s dropping again and it looks like an attractive buy. I heard that TD is doing some layoffs and perhaps that will drop the price again. I have recently purchased some shares and CIBC and keeping a close eye on TD as well!

  11. Great buy it seems. I’ve been wanting to buy some Canadian Banks, but hesitated because in taxable accounts, we in the US are hit with the foreign withholding tax. However, now that I will soon need to roll over my 401K, this will be a prime opportunity to delve into this sector. Thanks for the great article.

    – HMB

    • HMB,
      Good luck with your investment. Like I outlined in the article, Canadian banks are facing some headwinds and are being beaten down…but it provides the perfect opportunity to start adding them imo.

      Best wishes
      R2R

  12. Nice addition R2R! I am debating between adding BNS or TD (maybe both!) to my portfolio over the next few months. I like what I see with both of them and like the more conservative nature of the Canadian banks in general. Plus they both have exposure outside of there home market, which is a plus.

    Take care!

    • ILG,
      You got that right…they are both conservative and have exposure in intl markets. BNS has more of an international exposure than TD (or any other Canadian bank), and thats why I started investing in BNS a while ago. BNS is also currently a bit more undervalued than the other ones.

      Happy investing
      R2R

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