TD Bank is currently trading near $86 per share, down 20% from its 2022 high of $108. Despite a dip to $74 earlier this summer, the stock has shown signs of recovery. Investors who missed the recent rally are now questioning whether TD is still undervalued and a good buy for a dividend-focused portfolio.
Table of Contents
Recent Stock Performance
The recovery since June aligns with rate cuts from the Bank of Canada and recent cuts in the United States. With inflation stabilizing, central banks have room to ease rates further, potentially reducing the risk of a recession. Normally, falling interest rates could harm banks by squeezing net interest margins, but the market now anticipates lower loan defaults, which could positively impact TD’s provisions for credit losses (PCL) heading into 2025.
Regulatory Challenges
TD’s share price remains under pressure due to ongoing regulatory investigations in the U.S. regarding anti-money-laundering practices. Having invested significantly in U.S. retail banking, TD has set aside over US$3 billion to cover potential fines. While these challenges hinder growth plans, they are expected to resolve eventually, allowing TD to focus on expansion in the American market.
Investment Opportunities
Once regulatory issues are settled, TD can refocus on growth, potentially boosting stock prices significantly. The bank remains profitable and has a strong capital position, which positions it well to navigate current headwinds. Additionally, the appointment of a new CEO next year could provide a fresh strategic direction.
Risks to Consider
However, analysts warn of potential restrictions on TD’s U.S. expansion as part of regulatory resolutions. Broader market pullbacks, rising unemployment, and inflation concerns also pose risks. Should economic conditions worsen, TD might revisit 2024 lows.
Should You Buy TD Now?
Despite near-term uncertainties, TD presents a compelling opportunity for buy-and-hold investors. The current share price offers a robust 4.8% dividend yield. For those wary of immediate risks, taking a half position now and looking to add on weakness may be prudent. Historically, investing in TD during pullbacks has proven beneficial for patient investors.
Fairfax Financial Holdings (TSX): A Solid Dividend Choice for Income-Focused Investors
Beginning Investors: 3 TSX Stocks I’d Buy With $500 Right Now
Investing in Exchange-Traded Funds (ETFs) for Long-Term Growth: A Smart Investment Strategy
TSX Stocks Near Lows to Buy Up Right Now
Enbridge (TSX): A Reliable Income Stock or a Risky Investment?
In summary, while challenges remain, TD Bank’s solid fundamentals and potential for growth in the U.S. market make it an attractive option for dividend-seeking investors.