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.
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.
- 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.
- Toronto-Dominion Bank Dividend Stock Analysis
- It’s Time to Start Nibbling the Canadian Banks
- Look To Canadian Banks For a Strong Financial Exposure
Full Disclosure: Long BNS, TD. My full list of holdings is available here.