Yahoo Finance Toronto-Dominion Bank's (TSE:TD) investors will be pleased with their 29% return over the last three years
Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you'll see some that fall short of the average. Unfortunately for shareholders, while the The Toronto-Dominion Bank (TSE:TD) share price is up 13% in the last three years, that falls short of the market return. Unfortunately, the share price has fallen 10% over twelve months.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Toronto-Dominion Bank
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the three years of share price growth, Toronto-Dominion Bank actually saw its earnings per share (EPS) drop 3.6% per year.
The comparison of the modestly falling earnings per share, and the relatively resilient share price, suggests the market is less cautious about the stock, these days. Having said that, if the EPS falls continue we'd be surprised to see a sustained increase in share price.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Toronto-Dominion Bank's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Toronto-Dominion Bank's TSR for the last 3 years was 29%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Toronto-Dominion Bank shareholders are down 5.7% for the year (even including dividends), but the market itself is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Toronto-Dominion Bank , and understanding them should be part of your investment process.
Of course Toronto-Dominion Bank may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian exchanges.
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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.
