The stock market has been quite volatile in 2022 with major indices all down significantly on the year. Canadian-based financial institution Toronto-Dominion Bank (TD +1.00%) has been dragged along for the ride. Stock for the parent company of TD Bank has fallen roughly 15% since February. Long-term investors evaluating their position on the stock should ride out this downdraft because TD Bank is easily one of the best-positioned banks, even if there's a recession on the horizon.
TD is in a strong position
TD Bank's primary operations are in Canada, where it is one of the largest names in the financial sector. The company estimates that it has a roughly 21% market share in its home market with No. 1 or No. 2 positioning in key product categories.
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This dominant position in the world's 10th largest economy gives it a very strong core, noting that the highly regulated Canadian market has pretty much cemented the positions of industry leaders like TD Bank. The Canadian part of the business represents around 57% of earnings.
In addition to being a giant in Canada, TD Bank is also a large player in the United States, where it is a top-10 bank. U.S. operations account for just over a quarter of overall revenue. But investors should note that it only operates on the East Coast at the moment, so it has huge growth opportunities in the country. In fact, the bank recently inked a deal to buy First Horizon (FHN +0.28%), furthering its reach in the Southeast.
In addition to these two businesses, TD Bank also operates a wholesale business -- banking services sold to other banks, financial institutions, and government agencies -- and it has a material stake in financial services company Charles Schwab (SCHW +0.84%), which together make up the rest of the bank's earnings. Overall, TD Bank ranks No. 5 or No. 6 in key industry metrics for North America as a whole.
Ready for the next hit
Right now, though, the most important takeaway is probably the Canadian core. Canada has a highly regulated banking system that has long tended toward the conservative side. So TD Bank's roots lead it to err on the side of caution, which shows up in its extremely conservative Tier 1 capital ratio of 15.2%. There's a lot that goes into that number, but it basically indicates how well a bank can handle adverse events like recessions. TD Bank has the best Tier 1 capital ratio in North America.
NYSE: TD
Key Data Points
To add some insight into the bank's strength, unlike many of its large U.S. counterparts, TD Bank didn't cut its dividend during the deep 2007 to 2009 housing-led Great Recession. That said, the company pays dividends in Canadian dollars, so the amount a U.S. investor receives will fluctuate based on exchange rates. And Canadian taxes will be taken out of the dividend, requiring a little extra paperwork to reclaim those costs come April 15. But the key is that when bad times hit, TD Bank proved itself to be rock solid.
Now add in the U.S. growth opportunity, and a recession could actually present the financially stable TD Bank with a chance to press the accelerator. That doesn't mean that its shares won't get hit along with its U.S. and Canadian peers. Indeed, the bank's shares will be just as susceptible to investor psychology as any other stock, but its business is likely to hold up just fine. So any downturn in the shares should probably be seen as a buying opportunity. In fact, the dividend yield is already a fairly enticing 3.8%.
Don't sell, and maybe be ready to buy more
All in, TD Bank is a very well-positioned and conservative financial institution with room for growth. The yield is already well above what you can get from the broader market, perhaps making it an attractive option for risk-averse investors looking to shift into more-conservative holdings.
But if you own TD Bank, don't make the mistake of selling it just because the stock is down a little bit. History suggests that a sell-off of this stock is more likely to create a buying opportunity than a sign that the company's strong historical performance is coming to an end, even if a recession is in the cards.
