Toronto-Dominion Bank (NYSE:TD) may not be a household name in the U.S., but it is one of the Big Five banks in Canada. And it has significant operations in the U.S.
It’s this latter point that is one of the most compelling features of this solid total return pick. In 2016, TD’s U.S. retail business accounted for nearly a third of the company’s revenue.
This is important because part of the biggest challenge Canadian banks have is the fact that the Canadian dollar (aka, loonie) is weakening against the U.S. dollar. That means it’s getting harder to generate revenue growth when the currency is moving against you.
TD continues to expand in the U.S. market, which has helped diversify its revenue stream while also hedging its revenue growth by increasing its U.S. dollar-denominated revenue. Last year, TD saw a 16% growth in U.S. revenue compared to 2015. TD already has 8.5 million U.S. customers and 1,300 branches in the Northeast, Mid-Atlantic, Carolinas and Florida.
That comprises some of the top growth regions in the U.S. and it still has the rest of the U.S. to grow into. What’s more, TD’s financial services subsidiary TD Ameritrade also has a significant amount of U.S. customers who rely on the discount online brokerage service.
TD has also stepped up its game on this front, adding investment counselors, Chartered Retirement Planning Counselors and other wealth management resources which all add to revenue.
And with a pro-business president about to take office, it’s a very encouraging sign for TD’s growth ambitions in the U.S. market. Even if Trump upends trade deals, it’s unlikely that TD will have too much trouble because of its long history in the U.S. marketplace and its direct relationship with businesses and consumers here.
As far as its Canadian business goes, there’s no reason to worry that TD is going to get caught in ebbing economic tide in Canada. As a matter of fact, Bloomberg recently reported that TD took top spot last year in managing stock sales for Canadian companies coming to market. And revenues were up 17% in this division for 2016.
These are solid numbers for large tech firms, Big Pharma and manufacturing companies, but this is a bank. This kind of growth is impressive and it’s why TD carries a higher PE than its competitors. It’s worth the money.
The stock is up 40% in the past 12 months, but it has been a slow and steady ride there. For example, TD was up 20% in the past six months. And even at these levels, TD is offering an attractive 3.3% dividend yield that’s about as safe and solid as they come.
There is still plenty of headroom left for the stock, even if it’s not at its current pace, it will still be a consistent strong grower, especially if the U.S. market recovers further.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
