Toronto-Dominion Bank: Buy, Sell or Hold?

Toronto-Dominion Bank (T.D 0.08%)one of the largest banks in North America, stumbled. There is no way around this fact. But the reaction on Wall Street left the dividend yield at 4.7%, well above the average bank’s 2.5% yield, using SPDR S&P Bank ETF as an industry proxy. Is this Canadian banking giant a buy, sell or hold today?

Buy Toronto-Dominion Bank

The main reason to buy Toronto-Dominion Bank, commonly referred to as TD Bank, is its above-average dividend yield. In other words, this is an income investor stock. Notably, TD Bank has paid a dividend every year since 1857, well over 100 years. You can most likely rely on TD Bank to keep paying you. It also has an investment-grade balance sheet, so it remains a solid company.

Image source: Getty Images.

The foundation behind this dividend story is also pretty compelling. TD Bank is the second largest bank in Canada by assets and the sixth largest in North America. Canadian banking regulations effectively protect this country’s largest banks from competition, giving TD Bank a solid core. In the US market, TD Bank operates largely on the East Coast, so it also has material geographic expansion potential in the long term.

In terms of its actual business, TD Bank operates in several segments of the financial industry. This includes, but is not limited to, traditional banking, insurance, personal investment and corporate finance. And it has room to grow in every segment. TD Bank is rarely exciting to own (more on that in a second), but it’s long been a reliable, slow-growing banking giant — which, when you add in the high yield, is a great reason to buy actions.

Sell ​​Toronto-Dominion Bank

Unfortunately, the past two years have actually been quite “exciting” for TD Bank. That’s because it tried to buy a regional competitor in the US market, but had to write it off due to regulatory scrutiny. There was an information vacuum surrounding this decision for a long time, until the company explained that its internal controls on money laundering had failed. There will be considerable fines related to this issue, with the bank already having about $3 billion set aside. And its US growth plans are likely to be on hold until it regains the trust of regulators.

TD data by YCharts.

To TD Bank’s credit, it tackled this issue head-on. This included not only setting aside a huge amount of money for the legal and regulatory blow, but also a swift effort to improve its internal controls. Still, it’s a bad look for a bank to have problems like this. Some investors may want to avoid TD Bank for this reason alone. Meanwhile, those looking for growth probably won’t find this interesting either, as it will likely take time for TD Bank to return to a stronger growth path.

Owns Toronto-Dominion Bank

Here’s the thing: TD Bank thinks the money laundering problem will be largely resolved by the end of 2024. That doesn’t mean growth will resume immediately. Management will still need to win back the trust of regulators for this to happen in a meaningful way. But it seems very likely that the biggest risks are behind the company.

In other words, you can collect what appears to be a safe and well-above-average return while you wait for TD Bank to start growing again. Selling now would mean getting out after the worst is over, which doesn’t seem to make much sense if you’re an income investor.

Toronto-Dominion Bank offers a good risk/reward balance

Given the money laundering issue, TD Bank is best viewed as a turnaround story. But it’s a low-risk switch that even conservative income investors should be able to handle holding. Sure, there won’t be much growth for a while, but given its relatively high yield, you’re well paid to wait for better days.