Toronto-Dominion Bank (USA) (TD): A Look Into the Canadian Banking Industry

Page 1 of 2

Toronto-Dominion Bank (USA) (NYSE:TD)Today, I’ll be reviewing Toronto-Dominion Bank (USA) (NYSE:TD as part of my Great Canadian Banking Series. In this 10 part series I examine the Canadian banking sector to identify good dividend growth candidates.

Since the article is focusing on a Canadian sector I chose to show stock information from the Toronto Stock Exchange instead of the NYSE. Dollar amounts and stock information are in Canadian dollars.

10 year stock chart

The 10 year annual average return is 8.6%. If we include the dividend payments over the past 10 fiscal years (total dividends paid of $20.73) then the total average annual return would be 11.0% with the average return from dividends representing 2.4%.




Out of the big six Canadian banks, Toronto-Dominion Bank (USA) (NYSE:TD)’s 10 year capital gain has been the best.

Dividends

Toronto-Dominion Bank (USA) (NYSE:TD) has increased its dividend for 2 consecutive years in a row. Prior to this, it had a 16 year dividend streak from 1994 to 2009. The most recent increase occurred with the dividend recorded in April, when management increased the quarterly dividend by 5.2% from $0.77 to $0.81. This was the company’s second increase in the past year. Prior to the 5.2% increase it raised the quarterly dividend from $0.72 to $0.77. This would make the most recent annual increase from $0.72 to $0.81 which is a 12.5% increase.




In the chart, you can see where dividend growth slowed around 2008-2010. The overall trend is good, and it looks like dividend growth has started to improve since the global financial crisis.

Dividend growth

You can see the affects of the global financial crisis on the 3 and 5 year average annual dividend growth rates. The 10 year rate is good, and it looks like dividend growth has improved recently with the 1 year rate above 10%.


Estimated future dividend growth

Toronto-Dominion Bank (USA) (NYSE:TD) stated in a recent quarterly earnings presentation that it is targeting a payout ratio of 40-50% in the medium term. In the past few years, the payout ratio has been around 40-50%, and other banks like Canadian Imperial Bank of Commerce (USA) (NYSE:CM) and Bank of Montreal (USA) (NYSE:BMO) have stated that they are targeting a payout ratio of 40-50%. Based on these factors I think it is reasonable to assume that Toronto-Dominion Bank (USA) (NYSE:TD) is also targeting 40-50%.

Analysts expect annual EPS growth to be 7.8% for the next 5 years. Accepting this EPS growth rate and using a payout ratio of 40-50% would result in dividend growth of 6.4% to 11.2%. The company’s most recent annual dividend increase of 12.5% leads me to think that future dividend growth will be at the higher end of this range, likely around 10%.

Competitive advantage & return on equity (ROE)

Looking at the table below, it looks like Toronto-Dominion Bank (USA) (NYSE:TD)’s ROE has been below the industry average.


The Canadian banking industry is dominated by the big six banks. The big six are all very competitive so while there are not a lot of big players in the Canadian market, it is still very competitive. Overall I would say that Toronto-Dominion Bank has a narrow economic moat.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!