Toronto-Dominion Bank (TD 0.63%), commonly known as TD Bank, has long been an amazing dividend stock. For more than two decades, shares have consistently paid cash to shareholders every quarter. And while the dividend yield has usually hovered between 3% and 4%, that yield has recently popped to nearly 5%.
If you want to beat the S&P 500 by investing in reliable dividend stocks, pay close attention to TD Bank. There are three compelling reasons to buy the stock today.
1. TD Bank is a dividend superstar
When it comes to dividend stocks, it's important not only to value the size of a payout, but also its consistency. Sure, TD Bank shares currently offer a 5% dividend yield, but is it reliable? The answer is a resounding yes.
For more than two decades, TD Bank has consistently delivered a rising dividend payment, with very few stumbles along the way. In 2000, for example, the quarterly dividend rate was around $0.08 per share. In 2010 the quarterly dividend rate rose to $0.30 per share. Today it's $0.75 per share.
During times of trouble, TD Bank's dividend has proven remarkably stable. During the 2008 financial collapse, the dividend was reduced slightly. But within two years the dividend rate was exactly where it had left off. During the 2020 flash crash, meanwhile, the bank's payout continued to rise, and has just recently set new all-time highs.
When it comes to a proven history of rising dividend payments, few stocks can match TD Bank's resume.
TD Dividend data by YCharts
2. Dividends have allowed shares to beat the S&P 500
Dividends can make all the difference for a stock's long-term performance. Since 2000, TD Bank stock has risen roughly 340% in value. For comparison, the S&P 500's total return was around 450%. When accounting for TD Bank's dividends, however, the equation shifts dramatically, with TD Bank stock delivering a 940% total return since 2000 -- nearly twice the return of the S&P 500.
Bank stocks in general are known for their dividend yields, but recessions and financial downturns can often put these payouts in peril. TD Bank's conservative capital approach combined with Canada's consolidated banking market, stable economy, and tight financial regulations have resulted in a steady performance that has beaten the S&P 500 over the long term, with dividends playing a huge role in that outperformance.
3. Now looks like a great time to invest in TD Bank stock
Just because TD Bank has beaten the S&P 500 over the long term doesn't mean that it beats the market every year. Over the past 12 months, for instance, TD Bank stock has lost 2% of its value, compared to a positive 24% performance by the S&P 500. A rising dividend rate, meanwhile, has resulted in a multi-year high for TD Bank's dividend yield, which currently stands at around 5%.
The last time TD Bank's dividend yield reached these heights, shares proved to be a screaming buy. If you had purchased shares in 2008, for example, you would have more than tripled your original investment. After the dividend yield surpassed 5% in 2020, meanwhile, the stock went on to more than double in value.
To be sure, bank stocks are notoriously sensitive to economic conditions. TD Bank is no exception. Earnings were sharply lower last year as the company struggled to adjust to higher interest rates, which hindered loan growth and compressed deposit margins. Costs in some segments also rose sharply due to acquisition-related expenses and higher compensation levels. Separately, the company revealed this week that it would set aside $450 million to account for ongoing anti-money laundering investigations. There still may be additional fines that this initial provision does not cover, and it's yet another blow for a bank struggling to regain its previous profitability levels.
There's no doubt that TD Bank is dealing with multiple headwinds right now. It's why shares trade at a historical discount. Over the long term, however, TD Bank has proven exceptionally well managed. If you're willing to be patient, expect management to right the ship. With the dividend yield at 5%, you'll be paid to wait while securing a discounted valuation on what was formerly one of the market's best-performing bank stocks.
