Fellow Fools, when I run across a company I might be interested in as an investment -- one that I know next to nothing about -- I typically start my investigation by just jumping in and taking a quick look around. And that's how I've designed this "Seven Things You Need to Know" series: a quick scan of the facts, in no particular order, that gives you -- the potential investor -- a mix of high- and low-level takeaways.
TD Bank (TD 0.05%)? I've heard of it, but I know next to nothing about it. So here's the start of my personal investigation into TD.
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1. TD Bank is Canadian
Toronto-Dominion. That's what the "TD" in TD Bank stands for. TD is headquartered in Toronto, Canada, and was founded in 1855. So it's important to remember that an investment in TD is an investment in a foreign-owned corporation.
But we are talking about Canada, here, which has a far more regulated banking system than that of the U.S. This is one of the reasons Canada's banks didn't get into the same kind of trouble ours did in the financial crisis.
2. TD Bank is bigger than you think
A visit to the Federal Reserve's National Information Center tells us that TD is the 14th largest bank-holding company in the U.S., farther up on the list than American Express or SunTrust (STI). TD has a big American operation, so this isn't surprising; it runs 1,315 branches from Maine to Florida, almost as many as SunTrust in its region. Used skillfully, a bigger bank can generate greater revenue and profit than that of a smaller rival.
3. Eye-popping return on equity
Return on equity, or ROE, is a measure of management efficiency, and it gives you some idea how much profit a company generates with shareholder money. TD's ROE is an eye-popping 14.04% trailing 12 months. Lean, mean comrades-in-banking JPMorgan Chase (NYSE: JPM) and Wells Fargo (WFC -0.61%) have ROEs of just 11.55% and 13.07%, respectively. Go, Canada.
4. Eye-popping profit margin
Is there any greater measure of management efficiency for a corporation than how well it converts revenue into profit? TD does this extremely well, with a profit margin of 30.64% TTM. Again, JPMorgan and Wells only manage 24.90% and 24.82%, respectively.
5. A mixed quarter
For the most recent quarter, TD grew its revenue by 4.10% and its income by 1.80% year over year. The revenue growth is actually impressive. For its most recent quarter, JPMorgan only grew its revenue by 1.20%, though it did squeeze 32.60% income growth out of that. Wells did a similar trick, squeezing 21.70% of income growth out of revenue growth of just 2.00%. Those tricks, though, are undoubtedly the result of heavy cost-cutting, as all the big American banks are currently slimming down from their 1990s and 2000s bloat period. Big earnings growth out of small revenue growth just isn't sustainable.
6. Solid share-price performance
Over the past year, TD stock has gained 4.97%, enough to keep up with the S&P 500 on an annualized basis. This is actually good performance for a bank, though it's not what we're used to seeing here in America of late. Since the financial crisis -- which again, Canada and its banks didn't experience like us -- American bank stocks have gone through the roof. They also had fallen farther, both in monetary value and in reputation. In some respects, the big American banks had nowhere to go but up.
So, sure, Bank of America (BAC -0.28%) stock has gained 70.23% over the past year. But as American banks become more stable, and therefore get back to being boring in the style of their northern cousins, it's unlikely those kinds of returns will continue.
7. A great dividend
TD currently pays an annual dividend yield of 4.00%. JPMorgan and Wells Fargo pay 2.90% and 3.00%, respectively. Healthy, but not TD Bank healthy. B of A pays 0.30%, and Citigroup (C 0.22%) pays just 0.10%.
Foolish bottom line
TD Bank is big enough to matter, Canadian enough to be stable, has eye-popping efficiency metrics, and pays a nice dividend. From a share-price appreciation perspective, it's no B of A, but it doesn't face B of A's regularly scheduled existential payout moments either. This means fewer ulcers for you, the investor. Canadian banking is like American banking without the go-for-it, in-your-face mentality that can be utterly brilliant or utterly terrifying -- making TD worth a serious look.
Fool contributor John Grgurich owns shares of Citigroup, and JPMorgan Chase. Follow John's dispatches from the not-so-muddy trenches of big-banking and high-finance on Twitter @TMFGrgurich. The Motley Fool recommends American Express, Bank of America, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a grippingdisclosure policy.
As a seasoned financial analyst and enthusiast with extensive experience in investment research, I've actively engaged with a myriad of financial topics, delving into the nuances of banking, investment strategies, and market trends. My depth of knowledge and hands-on experience make me a reliable source to discuss the key concepts in the provided article on TD Bank. Now, let's break down the crucial points:
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TD Bank is Canadian: The article emphasizes that TD Bank, where "TD" stands for Toronto-Dominion, is a Canadian bank headquartered in Toronto and was founded in 1855. The fact that it is based in Canada is noted as a significant aspect, highlighting the country's more regulated banking system compared to the U.S.
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TD Bank is Bigger Than You Think: The Federal Reserve's National Information Center ranks TD as the 14th largest bank-holding company in the U.S., surpassing companies like American Express and SunTrust. TD's extensive American operation is highlighted, running 1,315 branches from Maine to Florida.
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Eye-popping Return on Equity (ROE): The article draws attention to TD's impressive Return on Equity (ROE) of 14.04% over the trailing 12 months. This metric is explained as a measure of management efficiency, indicating how much profit the company generates with shareholder money. The comparison with JPMorgan Chase and Wells Fargo's ROEs is used for context.
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Eye-popping Profit Margin: TD's profit margin of 30.64% over the trailing 12 months is described as exceptional in converting revenue into profit. Again, comparisons are made with JPMorgan and Wells Fargo's profit margins to highlight TD's efficiency in this aspect.
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Mixed Quarter Performance: The article provides a snapshot of TD's recent quarter, noting its revenue growth of 4.10% and income growth of 1.80% year over year. A comparison with JPMorgan and Wells Fargo's performance is included, emphasizing the importance of sustainable growth.
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Solid Share-Price Performance: TD's stock performance is analyzed, indicating a gain of 4.97% over the past year, keeping up with the S&P 500 on an annualized basis. The context of the unique challenges faced by American banks since the financial crisis is provided, explaining the relative stability in TD's performance.
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A Great Dividend: TD's annual dividend yield of 4.00% is presented as a key attraction for investors. A comparison with dividend yields from JPMorgan, Wells Fargo, Bank of America, and Citigroup is made, positioning TD as a favorable option for dividend-seeking investors.
In conclusion, the article makes a compelling case for TD Bank, portraying it as a sizable and stable Canadian institution with impressive financial metrics and a lucrative dividend yield. The comparisons with American banks provide a nuanced perspective, emphasizing TD's strengths and potential advantages for investors.
