COVID-19 economic uncertainty has forced big banks to increase the funds set aside for possible loan defaults. This hurts current earnings, but regulators have relaxed bank capitalization requirements.
To further preserve capital, banks have suspended their share buyback programs and will hold their dividends steady. Still, this bank, in particular, continues to offer solid income for investors and a 5.3% yield.
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TORONTO-DOMINION BANK (Toronto symbol TD; www.td.com) is Canada’s second-largest bank (by market cap) after Royal Bank.
TD gets 68% of its earnings from its Canadian retail business, which operates 1,087 branches. Its U.S. operations, which mainly consist of 1,220 branches from Maine to Florida, supplies 20% of its earnings. The remaining 12% comes from wholesale banking; it offers securities trading and services such as stock underwriting.
TD owns 43% of U.S. brokerage firm TD Ameritrade (Nasdaq symbol AMTD). Ameritrade will contribute $328 million (Cdn.) to TD’s earnings for the third quarter ended July 31, 2020. That’s up 8.3% from $303 million a year earlier due to a surge in trading because of COVID-19. Meantime, Ameritrade still plans to merge with rival brokerage firm Charles Schwab (New York symbol SCHW) later this year.
On the income front, the bank announces dividend increases annually instead of two or more times per year. With the April 2020 payment, it increased the quarterly dividend by 6.8%, to $0.79 a share from $0.74. The new annual rate of $3.16 yields a high 5.3%.
Your TD dividend has now increased an average of 9.1% annually over the last 5 years. The bank’s TSI Dividend Sustainability Rating is Highest.
Value Stocks: Earnings are down but beat estimates
The bank continues to put aside more funds to cover potential bad loans as a result of COVID-19. In its fiscal 2020 third quarter, ended July 31, 2020, those provisions jumped 234.0%, to $2.19 billion from $655 million a year earlier. However, that’s a big improvement over its second-quarter provision of $3.22 billion.
Earnings in the latest quarter fell 30.2%, to $1.25 a share (or a total of $2.33 billion) from $1.79 a share (or $3.34 billion).
Those figures exclude unusual items such as costs to integrate recent acquisitions. On that basis, the latest earnings beat the consensus estimate of $1.23 a share.
Earnings from Canadian retail banking operations (53% of the total) fell 33.2% due to the higher loan-loss provisions and insurance claims. The higher loss provisions also caused earnings at its U.S. retail division (28%) to drop 47.7%.
However, TD’s Wholesale division (19%) saw its earnings jump 81.1% due to higher security-trading volumes and underwriting fees.
Overall revenue in the quarter rose 1.6%, to $10.67 billion from $10.50 billion. That also beat the consensus forecast of $10.0 billion.
I like your basic service and am a subscriber. But I am thoroughly fed up with the repetition of your emails. Over. And over. And over. And over again! Beyond a certain point, it tends to be aggravating. Take an occasional rest please.
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I like your basic service and am a subscriber. But I am thoroughly fed up with the repetition of your emails. Over. And over. And over. And over again! Beyond a certain point, it tends to be aggravating. Take an occasional rest please.
Eric de Becker
Hi, Eric. Thanks for your ongoing subscription. Please note that you can control how many of our email you receive by setting your preference on your “My Account” page. Our customer service team is also ready to assist. Thanks again.