Monday, September 22, 2008

Toronto-Dominion Bank (TD) Dividend Stock Analysis

The Toronto-Dominion Bank and its subsidiaries provides financial services in North America. It operates through four segments: Canadian Personal and Commercial Banking, Wealth Management, U.S. Personal and Commercial Banking, and Wholesale Banking.

The Toronto-Dominion Bank is an international dividend achiever as well as a component of the TSX 300 index. It has been increasing its dividends for the past 14 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 17.90 % to its shareholders. The stock has lost 10 % of its value so far in 2008.
At the same time company has managed to deliver a 16.80% average annual increase in its EPS since 1998.

The ROE has fluctuated greatly; falling from 30% in late 1990’s to zero in 2002 before recovering to 30% again at the end of our study period.

Annual dividend payments have increased by an average of 13.70% annually over the past 10 years, which is higher than the growth in EPS. A 14% growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1996, TD has actually managed to double its dividend payment every five years on average.

If we invested $100,000 in TD on December 31, 1998 we would have been able to purchase 5919 shares (Adjusted for a 2:1 split in August 1999). In early 1999 your quarterly dividend check would have been for $1006. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $4871 by July 2008. For a period of 10 years, your quarterly dividend income would have increased by 242%. If you reinvested it though, your quarterly dividend income would have increased by 384%.

The dividend payout ratio has remained over 50% for the majority of the time over our study period. Over the past two years this ratio has remained below 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

TD does look attractively valued with its low price/earnings multiple of 13, low DPR as well as attractive yield at 4 %. The current yield is pretty attractive based off historical standards as well.

Canadian banks have not been affected by the sub-prime mortgage crisis like their related banks in the US. It would be interesting to follow developments on the strength of the Canadian financial sector for any signs of trouble.
In the meantime I will put this stock on my watch list.

Disclosure: I do not own shares of TD
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