Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

This Bank Stock Has Paid Dividends for 160 Years -- Here's Why You Should Own It

By Matthew Frankel, CFP® - Jan 31, 2017 at 8:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This Canadian bank could provide the growth and income you're looking for.

If you want a North American bank with a 100-plus-year history of steady dividend payments, look north of the border. Specifically, Canada-based Toronto-Dominion Bank ( TD 1.38% ), more commonly known as TD Bank, pays one of the best dividends in the banking industry and has a safe but ambitious growth strategy that could keep its excellent performance going for decades to come.

TD Bank sign on branch building.

Image source: Flickr user Mike Mozart.

Toronto-Dominion Bank: The one-minute version

Toronto-Dominion, or TD Bank, is the sixth-largest North American bank, both in terms of total assets and market cap. The bank is based in Canada but has a substantial and growing U.S. operation.

Over the past decade or so, TD Bank has grown rather aggressively, both organically and through a series of retail-oriented acquisitions. Major acquisitions over the past decade include New Jersey-based Commerce Bank and credit card portfolios from Chrysler Financial, MBNA, and Target. Before 2010, TD Bank exited several of its non-core businesses, such as proprietary trading, to focus on retail, a move that seems to have paid off nicely.

In addition to its Canadian and U.S. retail banking operations, TD Bank owns about 42% of TD Ameritrade ( AMTD ). TD Ameritrade and TD Bank recently entered into an agreement to acquire Scottrade, and as part of this deal, TD Bank will acquire Scottrade Bank, the company's U.S. banking unit, for $1.3 billion, so it's fair to say the growth isn't done yet.

Reasons to love TD

There are several reasons I own TD Bank in my portfolio, and why you may want to take a look as well. For example:

  • While other banks are shifting away from a physical presence, TD Bank still emphasizes great, personal customer service. Known as "America's Most Convenient Bank" ever since it acquired Commerce Bank in 2008, TD Bank's branches are open for longer hours than its peers, and many branches are open on the weekends, even Sundays.
  • TD Bank has a diverse revenue stream -- just 61% of its earnings come from Canada, making U.S. investors less vulnerable to currency fluctuations.
  • Unlike the big U.S. banks, TD Bank has more freedom to set its own dividend policy. This is why the company never cut its dividend during the financial crisis and continues to pay one of the best dividends among the big North American banks.
  • Since most of its funding comes from personal and commercial deposits, many of which are non-interest-bearing, TD Bank stands to benefit from the expected interest rate growth over the coming years.
  • TD Bank is the No. 1 credit card issuer in Canada and has several high-value co-branding agreements, such as Target and Nordstrom in the United States.
  • TD Bank has lots of room to grow its U.S. business, as it is currently only in 15 states and the District of Columbia. However, TD Bank has a top-five market share in all its major markets, including the No. 3 market share in New York City.
  • TD Bank is a socially responsible company and is a member of the Dow Jones Sustainability World Index. It was also named "Best Green Bank" in North America by Capital Finance International.
  • TD Bank has one of the best credit ratings of any bank, anywhere. With long-term debt ratings of Aa1 (Moody's) and AA- (S&P), it's no wonder Global Finance magazine named TD Bank the "safest bank in North America."
Chart of TD's credit rating versus peers.

Image source: TD Bank.

The proof is in the performance

A stock's past performance doesn't guarantee its future results, but it can be a good predictor, especially in regard to dividends and earnings growth. In other words, a stock with a history of growth in a variety of economic environments, as well as a strong history of dividend growth, is more likely to continue these trends than is a stock with a shaky dividend history.

TD Bank has done a good job of consistently growing its earnings, which has allowed it to increase its dividend at an 11% annualized rate since 1995. Even more impressively, you'll notice that there have been no dividend cuts -- even during the financial crisis. How many big U.S. banks can say that?

Chart of TD Bank's dividend history since 1995.

TD Bank's dividend history since 1995. Note that payments are in Canadian dollars. Image source: TD Bank.

Furthermore, TD has produced significantly better returns than its peers -- both Canadian and U.S.-based. In fact, over the past decade, TD's average annual total return of 10.4% handily beats the North American average of 2.5% and tops the Canadian big-bank average of 7.8%.

Could TD's best years be ahead?

While I think TD's growth still has a long way to go, the next few years could be particularly good for TD Bank. Now, TD may not be quite as much of a beneficiary of President Trump's de-regulation and economic growth efforts as the big U.S. banks, but with massive U.S. exposure, it would still benefit from a rising-rate environment, as well as the increasing demand for banking services that Trump's job and wage growth initiatives could create.

The bottom line is that the next few years could be a great time to own bank stocks, and TD is a good choice that could capitalize on any "Trump effects," as well as deliver excellent growth in a safe manner for decades.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Toronto-Dominion Bank Stock Quote
The Toronto-Dominion Bank
$75.04 (1.38%) $1.02
TD Ameritrade Holding Corporation Stock Quote
TD Ameritrade Holding Corporation
Target Corporation Stock Quote
Target Corporation
$245.63 (1.09%) $2.66
Moody's Corporation Stock Quote
Moody's Corporation
$398.40 (3.37%) $12.99
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
$21.44 (4.23%) $0.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.