Forget New York Community Bancorp; Buy this magnificent high-yielding bank stock instead

Investors looking for attractively valued stocks often start by scanning lists of underperforming stocks. There you will find both New York Community Bancorp (NYCB 8.45%) and Toronto-Dominion Bank (T.D 1.54%)often referred to as TD Bank. While investors can find interesting stocks among Wall Street’s laggards, you’ll want to buy only the stocks that seem best positioned to turn things around.

For dividend investors, TD Bank looks like the best option here.

What happened to New York Community Bancorp?

From a big picture perspective, New York Community Bancorp got too big too fast, and it wasn’t ready for it. Two acquisitions in a short period increased the size of its business and this meant that regulators would look more closely at the company’s business because it was more important from an economic point of view. The bank did not have the systems to deal with the control. Perhaps in a sign of potential regulatory problems, the bank also found that several large loans in its portfolio were troubled.

Image source: Getty Images.

The fallout was swift and painful for investors. Not only did the stock price drop, but the dividend was cut to just $0.01 per share per quarter. To the bank’s credit, it worked quickly to fix the problems, including bringing in a new management team and accepting a $1 billion bailout from institutional investors. While New York Community Bancorp will likely survive the headwinds it faces, the turnaround won’t be complete until late 2026 at the earliest. And really, with no dividend to speak of, there isn’t much reason to buy the stock until more progress is made in the turnaround effort.

What happened to Toronto-Dominion Bank?

Meanwhile, TD Bank faced its own regulatory problems. The company’s problems came to a head when US regulators forced TD Bank to cancel an acquisition because of deficiencies in its handling of money laundering controls. As it turns out, bank employees appear to have laundered money for drug dealers. The bank quickly set aside $450 million to deal with the problem, but then announced it would set aside another $2.6 billion when it reported third-quarter 2024 earnings.

However, TD Bank is a bigger and stronger bank than New York Community Bancorp. For starters, TD Bank’s US operations are based on its Canadian banking business. TD Bank is Canada’s second largest bank by assets. Canada is a country where strict regulations insulate industry giants from competition. Its US retail operations account for just 12% of earnings.

In other words, the US regulatory issues facing TD Bank are a problem, but not likely to be a threat to its entire existence. The bank also announced that it would reduce its stake Charles Schwab from 12.3% to 10.1%. The proceeds from the sale, which are likely to come close to the $2.6 billion it set aside during the quarter, will help it cover the cost of the money-laundering problem. That’s not a problem, but TD Bank seems to have the issue under control, and notably expects to have the regulatory issues resolved by the end of the calendar year.

Growth will likely stall for a while as TD Bank continues to navigate headwinds and regain trust with regulators, but TD Bank looks set to survive and continue to thrive in the long term. And in particular, the risk to the stock’s consistent 5% dividend yield seems pretty low. While the quarterly earnings results will likely be hard to read for a few quarters (the fiscal third quarter was very poor given the $2.6 billion write-off), conservative investors and income investors looking for an opportunistic investment will likely prefer TD Bank than New York Community. Bancorp.

Both are likely to survive

To be entirely fair, both banks are likely to survive their regulatory headwinds. But New York Community Bancorp is a much riskier turnaround piece. Investing in heavy return plays is a type of investment that only the most aggressive investors should attempt. TD Bank’s situation is not as dire, at least in part because of its core operations in Canada. Add in the gross dividend yield and it looks like the better option for most investors.