With such a solid, growing dividend and, more recently, impressive capital gains, it’s not all that hard to wonder why I’m not all that willing to part with my shares of TD Bank (TSX: TD). Of course, you could say the same about any Big Six Canadian bank stock these days, even after the recent multi-week period of turbulence they’ve been through. Of course, it’s hard to tell when it’ll be curtains for the big bank trade. In my humble opinion, I think there are ample drivers in place that more than justify the heightened valuation metrics on the Big Six names.
And while the price of admission is getting up there (perhaps it’s too high to consider buying with new money), I do think that TD Bank shares stand out as still relatively affordable, especially when you consider the overhang of regulatory hurdles south of the border that stand to limit the big bank’s growth. Indeed, the money-laundering fiasco has been a drag on the stock for several years before the stock took off alongside the broader basket. And since then, TD Bank stock has not looked back under the leadership of CEO Raymond Chun.
Indeed, Mr. Chun arrived at the bank at the best possible time, right before the Canadian banks took off. And while the growth in the U.S. remains a question mark, I do think that under Mr. Chun’s leadership, the $272.5 billion colossus will get back on the right track.
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The bank bull market isn’t looking back
Indeed, the bank needs to keep investing in efforts, including AI, to prove that it can move right back into the fast lane when it comes to growth in the U.S. In the meantime, using the excess capital to bet big on AI cost-saving technologies, as well as dividend hikes and buybacks, is something that long-term investors simply cannot complain about.
So, is there anything more to the TD Bank story other than the relatively modest multiple, with shares currently going for 17.8 times trailing price-to-earnings (P/E)?
With the bank’s chief operating officer recently departing (on a high note, I might add) and plenty of executive changes to ponder, I still think that the trajectory is a positive one, with an earnings bar that I think is a lot lower than it is for some of its Canadian peers in the Big Six basket. With a track record of getting a good bang for its buck when investing in emerging technologies (like AI), I do think that it’s a mistake to count TD Bank out of the game just because shares are close to the most expensive they’ve traded in recent years.
The bottom line
As the firm looks to surpass its AI monetary milestones, my guess is that the big banks could rise as the biggest AI winners in the country. Add robust wholesale banking momentum into the equation, and it feels like TD Bank’s best drivers aren’t quite priced in, even though 17 times trailing P/E feels a tad high historically. Despite the baggage it has over peers and the muted 2.7% dividend yield, I remain a big fan of the name and am staying the course.
