Advertisement
Canada markets open in 1 hour 47 minutes
  • S&P/TSX

    21,837.18
    -12.02 (-0.06%)
     
  • S&P 500

    5,149.42
    +32.33 (+0.63%)
     
  • DOW

    38,790.43
    +75.63 (+0.20%)
     
  • CAD/USD

    0.7372
    -0.0017 (-0.23%)
     
  • CRUDE OIL

    82.82
    +0.10 (+0.12%)
     
  • Bitcoin CAD

    85,293.02
    -7,413.24 (-8.00%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,158.50
    -5.80 (-0.27%)
     
  • RUSSELL 2000

    2,024.74
    -14.58 (-0.72%)
     
  • 10-Yr Bond

    4.3400
    0.0000 (0.00%)
     
  • NASDAQ futures

    18,111.00
    -120.50 (-0.66%)
     
  • VOLATILITY

    14.79
    +0.46 (+3.21%)
     
  • FTSE

    7,703.55
    -19.00 (-0.25%)
     
  • NIKKEI 225

    40,003.60
    +263.20 (+0.66%)
     
  • CAD/EUR

    0.6791
    -0.0001 (-0.01%)
     

A Stock You Can Buy Now — and Get Paid for the Rest of Your Life

Female hand holding piggy bank. Save money and financial investment
Female hand holding piggy bank. Save money and financial investment

The fear of recession is forcing investors to sell their banking stocks and move to safe havens. That rationale isn’t hard to understand: banks’ fortunes are closely tied with the economy. As growth slows or contracts, so too does the lending business, which is the bread-and-butter for banks.

In this uncertain environment when many economic signals are flashing red and growth is slowing globally, investors are dumping their bank stocks. That trend hasn’t spared some of the top Canadian banks, which have rock-solid balance-sheets and a little risk of going under.

If you are one such investor who is sitting on the sidelines to wait for a better time to buy these stocks, the chances are that your moment to strike is probably getting closer.

ADVERTISEMENT

Among the top five Canadian banks, I am particularly focusing on Toronto-Dominion Bank (TSX:TD)(NYSE:TD), whose stock has fallen more than 5% during the past one month.

The main reason I like TD Bank is that it’s been very consistent in rewarding investors through steadily growing dividends, offering about 40-50% of its income each year in payouts.

Generous payouts

This generous dividend policy is a great incentive for investors who want to remain invested and earn a regular flow of income on their investments. TD’s ability to generate cash for its investors is supported by strong growth momentum, and TD’s significant retail-banking operation in the U.S.

You may be surprised to know that TD has more retail branches in the U.S. than in Canada, with a network that stretches from Maine to Florida.

In the most recent earnings, TD reported that the U.S. retail division posted a 29% growth in earnings to a record $1.26 billion.

Overall, TD roughly generates about 30% of its net income from the U.S. retail operations. The bank also has a 42% ownership stake in TD Ameritrade with a fast-expanding credit card portfolio.

After a 10.4% increase in its payout in February, income investors in TD stock now earn a $0.74-a-share quarterly dividend, which translates into a 4% yield on yearly basis.

This return has become more attractive since the yield on government bonds has begun to slide. For example, the yield on the U.S. 30-year Treasury note fell below 2% on August 14 for the first time, signalling a persistently low-rate environment.

The bank is forecast to grow its dividend payout between 7% and 10% each year going forward — an impressive growth rate and enough to beat inflation.

Bottom line

In the past five years, TD has proven to be a much better investment when compared to the benchmark index, producing returns more than 25%. The S&P/TSX Composite Index rose just under 4% during the same period.

If TD Bank stock price continues to fall, it could offer a more attractive opportunity for dividend investors to lock in a higher yield.

More reading

Fool Contributor Haris Anwar has no position in the stocks mentioned in this article.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019