Expansion into the U.S. has helped several Canadian banks, but none more than this one.
It now gets more than a third of its earnings from U.S. operations, thanks to several strategic deals. But the bank also made a Canadian acquisition this year that makes it the single largest wealth management firm in Canada. The bank’s revenue and earnings continue to rise. Earlier this year, it also raised its dividend, which now yields 3.7%.
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TORONTO-DOMINION BANK (Toronto symbol TD; www.td.com)is Canada’s second-largest bank, with total assets of $1.27 trillion. The bank gets 58% of its earnings from its Canadian retail business, which operates 1,108 branches. In the U.S., it has 1,246 branches along the East Coast, from Maine to Florida. This business supplies 35% of its earnings. The remaining 7% comes from TD’s wholesale banking business; it offers securities trading and investment banking services such as stock underwriting.
The bank’s revenue jumped 32.2%, from $27.2 billion in 2013 to $35.9 billion in 2017 (fiscal years end October 31). The gain is partly due to several acquisitions that expanded TD’s U.S. operations. Those include its October 2015 purchase of the credit card portfolio of U.S. retailer Nordstrom for $2.9 billion.
In September 2017, the bank and its 41.22%-owned TD Ameritrade (Nasdaq symbol AMTD) completed their acquisition of Scottrade Bank. TD Bank paid $1.3 billion U.S. for Scottrade’s banking operations. Ameritrade paid $2.7 billion U.S. in cash and shares for the brokerage operations.
If you exclude costs related to these purchases and other unusual items, TD’s overall earnings rose 50.1%, from $6.8 billion in fiscal 2013 to $10.3 billion in 2017. Earnings per share rose at a slightly slower pace of 49.3%, from $3.71 to $5.54, on more shares outstanding.
Blue Chip Stocks: New acquisition adds $36 billion in assets under management
The bank’s overall earnings in the quarter ended July 31, 2018, rose 9.1%, to $3.13 billion from $2.87 billion a year earlier. Per-share earnings rose at a faster rate of 9.9%, to $1.66 from $1.51, on fewer shares outstanding. Overall revenue in the quarter rose 6.5%, to $9.89 billion from $9.27 billion a year earlier.
In the quarter, the bank set aside $561 million to cover potential loan losses, up 11.1% from $505 million. Higher provisions on TD’s U.S. credit card and car loans offset a decline for its provisions in Canada. Even so, bad loans totalled just 0.35% of the bank’s total loans compared to 0.38% a year earlier.
TD continues to expand. It recently agreed to acquire Regina-based wealth management firm Greystone Managed Investments Inc. That firm serves institutional investors and has $36 billion in assets under management. The purchase will make TD the largest wealth management firm in Canada, with $393 billion in assets under management.
The bank will pay $729 million (70% cash and 30% TD shares) for Greystone when the deal closes later this year.
At the same time, TD continues to increase its efficiency by improving its online and mobile banking platforms. Thanks to those initiatives, its efficiency ratio (non-interest costs, such as employee salaries and building rental payments, divided by revenue—the lower, the better) improved to 51.2% in the latest quarter from 51.4% a year earlier.
The bank now announces dividend increases annually instead of two or more times per year. It last raised its quarterly dividend with the May 2018 payment. Shareholders now receive $0.67 a share, up 11.7% from $0.60. The new annual rate of $2.68 yields 3.7%.
TD should earn $6.43 a share for all of fiscal 2018, and the stock trades at just 11.4 times that forecast.
Recommendation in The Successful Investor: TD Bank is a buy.
It’s Financial Literacy Month in Canada: this Friday, see how to further your investment knowledge in our Daily Advice column.
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