Amy Legate-Wolfe
·4 min read
Written by Amy Legate-Wolfe at The Motley Fool Canada
The Big Six Banks have always been thought of as some of the safest investments on the TSX today. And that’s been true in the past for Toronto Dominion Bank (TSX:TD), the second-largest of the banks by market cap.
Yet, a few red flags have come up for investors in the last few months. The question is, does that mean now is the time to buy for a great long-term deal? Or avoid at all costs?
Sell
First off, let’s go with the sell angle. TD stock has been under a lot of scrutiny lately, especially for its money laundering scandal. TD Bank is facing significant regulatory scrutiny and investigations both in the United States and Canada related to anti-money laundering controls.
The bank has already taken a provision of US$450 million in relation to one of the U.S. regulatory probes, and analysts suggest that financial penalties in the U.S. could exceed US$2 billion. The allegations include failing to report money laundering related to the trafficking of illegal drugs, particularly fentanyl.
What’s more, TD stock has been fined nearly $9.2 million for non-compliance with Canada’s anti-money laundering regulations. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) found that the bank failed to submit suspicious transaction reports, indicating lapses in its compliance procedures. And there are still risks of the company incurring even more penalties.
Hold
All of these issues however could mean that investors may just want to hold the stock rather than sell it. After all, Canadian banks, including TD, are traditionally considered blue-chip stocks and are often perceived as safe investments. Despite the current regulatory troubles, TD stock remains a strong and well-established institution in the Canadian banking sector.
Looking at its valuation is another reason to consider at least holding on to the stock for now. TD Bank’s stock is trading at a historically low price-to-book multiple and offers a high dividend yield, making it potentially attractive for long-term investors. However, given the uncertainty surrounding the regulatory situation, investors may opt to hold off on buying additional shares until there is more clarity on the outcome of the investigations and any potential penalties.
So even though shares have shrunk downwards, perhaps there is enough reason to continue holding. Especially if you want dividends and long-term rewards.
Buy
As mentioned, there are multiple reasons to continue holding the stock. Despite the regulatory issues, TD stock is trading at a historically low price-to-book multiple of 1.3, indicating that it’s relatively cheap compared to its historical averages. Additionally, the bank is offering a high dividend yield of 5.23%, which is above its 25-year average of 3.4%.
And let’s be honest, TD stock has gone through tough times before. Canadian banks, including TD, are typically considered blue-chip stocks and are often seen as safe investments. However, scandals like this are rare in the Canadian banking sector.
The current situation then could lead investors to consider TD stock an opportunity to buy at a historic discount. Whenever a Canadian bank faces challenges like this, it creates a buying opportunity for investors. In fact, the potential inability of TD stock to grow in the U.S. due to regulatory constraints might result in the bank returning capital to shareholders through share buybacks and higher dividends.
The choice, as always, is yours. But with a 5.23% dividend yield and a cheap share price, it could be worth at least holding this stock for now.
The post TD Stock: Buy, Sell, or Hold? appeared first on The Motley Fool Canada.
Should you invest $1,000 in TD Bank right now?
Before you buy stock in TD Bank, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and TD Bank wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $18,271.97!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 5/21/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Amy Legate-Wolfe has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2024
