There's nothing inherently wrong with investing in U.S. banks, but you would be remiss if you didn't also consider some names from north of the border too. One that stands out is Toronto-Dominion Bank (TD 0.46%), which today offers a sizable 3.8% dividend yield.
Let's take a quick look at four key reasons you might want to add this admittedly boring bank stock to your portfolio.
1. TD Bank is dominant in Canada
TD Bank, as it is more commonly known, has a 21% market share in Canada. It is ranked No. 1 or No. 2 in most of the business categories where it competes. To be fair, Canada is "only" the 10th-largest global economy, so it is an attractive market but clearly not the most attractive, a distinction that goes to the largest economy -- the United States. And yet, there's something very interesting about Canada's banking sector because it is heavily regulated.
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There are two benefits from this. The first is that competition is basically limited to a handful of giant names. So, TD Bank isn't likely to see upstarts eat away at its business, and mergers and acquisitions of the big names are equally unlikely. The bank's business position is entrenched and likely to stay that way.
The second benefit is that Canadian banks face pretty conservative regulatory requirements. Thus, they are generally less aggressively managed than their U.S. counterparts. If you are a conservative dividend investor, that should be a major plus (more on this below).
2. TD Bank is important in the U.S.
Given that the Canadian market is mature and highly regulated, TD Bank, like many of its peers, has looked to the U.S. for growth. At this point, TD Bank is a top-10 U.S. bank, with a fifth or sixth position in key financial and industry segments.
So, you are not only getting a leading Canadian bank but also a leading U.S. bank in one investment. When you put these two countries together, meanwhile, you wind up with TD Bank being a top-five North American bank. That's pretty impressive when you consider the lineup of U.S. banks against which it competes.
3. TD Bank is a top name in a key metric
In TD Bank's fiscal first-quarter earnings presentation, it provided a list of its industry positioning in the U.S. and Canada. There was one area where it stood out: its 15.2% Common Equity Tier 1 Capital Ratio. Although this can get complicated, the basics here are that this number provides an idea of how well a bank can withstand financial hardship.
TD Bank is the leader in the U.S. and Canada on this metric, placing at No. 1 in both countries. That comes from the company's conservative roots, which have been shaped over the years by its Canadian operation. Being conservative may be boring, but it's good in the banking space. And with inflation high and interest rates likely to rise, being ready for the worst is more important than it has been in a number of years.
4. TD Bank generates reliable dividends
The one space where this conservative nature stands out is on the dividend front. TD Bank's dividends are reported in Canadian dollars, so what a U.S. investor gets will vary based on exchange rates. That said, it has paid a dividend consistently for over 150 years.
Between 1995 and 2022, the dividend has grown at an annualized rate of 11%, without a cut. Many of the largest U.S. banks had to trim their dividends during the Great Recession between 2007 and 2009. When it comes to dividends, reliability should be the default, and TD Bank has proven it is exactly that.
Slow and steady wins the race
When it comes to banking, playing fast and loose with the hope of making quick gains can lead to disaster. The industry is littered with names that pushed the envelope too far and regretted it, often wiping shareholders out along the way. That isn't likely to happen with TD Bank, which is very happy plodding along conservatively while rewarding investors for sticking around with a generous dividend yield.
You won't get rich quick here, but this industry-leading name with a conservative approach is a tortoise that you can count on to be a reliable cornerstone in your portfolio.
