Will Toronto-Dominion Help You Retire Rich?

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Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

The mortgage crisis made many retirement investors wary of investing in banks and other hard-hit financial stocks. But what many people don't realize is that north of the border, Canadian banks like Toronto-Dominion (NYSE: TD  ) avoided the worst of the financial crisis, due in large part to different mortgage financing practices that helped blunt the impact of the U.S. mortgage meltdown. But as Toronto-Dominion expands southward, is it vulnerable to future trouble? Below, we'll revisit how Toronto-Dominion does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Toronto-Dominion.


What We Want to See


Pass or Fail?


Market cap > $10 billion

$75.1 billion



Revenue growth > 0% in at least four of five past years

5 years



Free cash flow growth > 0% in at least four of past five years

3 years


Stock stability

Beta < 0.9




Worst loss in past five years no greater than 20%




Normalized P/E < 18




Current yield > 2%




5-year dividend growth > 10%




Streak of dividend increases >= 10 years

2 years



Payout ratio < 75%




Total score


6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Toronto-Dominion last year, the company has kept its six-point score. The stock has performed quite well, rising more than 20% over the past year.

Looking at big Canadian banks like Toronto-Dominion gives you an entirely different picture from seeing U.S. banks, as Canada's biggest are all doing quite well. Dividend levels across the industry have stayed high, and despite a slowdown in the resource-dependent Canadian economy, TD is still prospering.

In fact, TD has been working hard to expand in the U.S., with particular emphasis on the credit card issuing business. In the past year, it has taken on the private-label credit card businesses of both Target (NYSE: TGT  ) and Kroger (NYSE: KR  ) . Yet it still lost out on one prize, as rival Royal Bank of Canada (NYSE: RY  ) ended up buying Ally Financial for $4.1 billion.

But TD isn't invulnerable to changing conditions. Back in July, S&P changed its outlook on TD, RBC, and Bank of Nova Scotia (NYSE: BNS  ) from stable to negative. With the housing market cooling off and higher debt levels for Canadians, a less-severe version of the housing bust could make things difficult for TD, at least for a while.

For retirees and other conservative investors, TD's healthy, stable dividend and reasonable valuation are quite attractive. Despite the danger of a slowing Canadian economy, TD's cross-border business gives it valuable geographical diversification. That makes it a reasonable choice for consideration in many retirement portfolios.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

TD Bank may have largely avoided the financial crisis, but Bank of America and many of its U.S. peers weren't so lucky. But now that housing may be bottoming, is it time to buy Bank of America? To learn more about the most-talked-about bank out there, check out our in-depth company report on B of A, which details its prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2012, at 4:48 PM, tweenthelines wrote:

    Your article was just fine until you mentioned S&P. Their upgrades/downgrades should be ignored by any intelligent investor.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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