It is time for a stock analysis of one of my foundation stock picks, Toronto-Dominion Bank (TD). I’m looking to buy and hold 3-4 Canadian bank companies in my portfolio. Each of the big banks in Canada has different international exposure and interests.
TD Bank Group
This is one of the “Big Five” banks, which are the dominant companies in the banking industry in Canada. TD shares are listed on the TSX in Canada (TD) and the NYSE in the US (TD). TD has a market cap of $102.5 billion, holds assets over $1.1 trillion, and has 85,000 employees in offices around the world. TD’s three major business lines are: Canadian Retail, U.S. Retail and Wholesale. First off lets take a look at some of the key stats for TSX listed TD.
Price to Earnings: 13.16
Price to Free Cash Flow: 3.4
Price to Book: 1.6
Return on Equity: 13.75
As of 10/30/15 the stock price for TD was $53.68. The S&P/TSX is down -7.29% and TD is down -3.29% YTD.
This places TD below the S&P/TSX P/E of 16.1 and the TD 5 year average P/E of 13.7.
4.08 (9.86% CAGR since 2010)
Revenue increased 9.52% over 5 years to $30,831 CAD Million (TTM). This is an impressive revenue growth rate. To give you another comparison, revenues were $11,896 CAD Million in 2005.
TD presently yields 3.73%, which is well within my preferred range of 2.5% and up.
47% this is very close to where it was 5 years ago (47.4%) but revenues and EPS have grown since 2010 considerably. The TTM payout ratio is well within range for the company to afford to continue dividend payments.
TD remains the 2nd largest Canadian bank and has grown the profitability and earnings of its US operations. TD is one of the five largest banks in Canada which together account for over 90% of deposits. Banks in Canada are highly regulated; this combined with the sheer size of the major incumbent players makes for a wide moat.
Risks include large exposure to Canadian mortgage and consumer debt. These two factors continue to represent risks to the major Canadian banks and not just TD.
TD represents an attractive opportunity in the financial sector as it is relatively protected from competition and has a growing presence in the U.S. market.
Disclosure: Long RY, TD and BNS are long Foundation Watchlist Stocks