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Toronto-Dominion Bank (TSE:TD) Is Paying Out A Larger Dividend Than Last Year

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The Toronto-Dominion Bank (TSE:TD) will increase its dividend on the 31st of January to CA$0.89. Based on the announced payment, the dividend yield for the company will be 3.5%, which is fairly typical for the industry.

See our latest analysis for Toronto-Dominion Bank

Toronto-Dominion Bank's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Toronto-Dominion Bank's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 1.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was CA$1.32 in 2011, and the most recent fiscal year payment was CA$3.56. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Toronto-Dominion Bank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Toronto-Dominion Bank has seen EPS rising for the last five years, at 10% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Toronto-Dominion Bank Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Toronto-Dominion Bank is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Toronto-Dominion Bank that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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