Should higher inflation and less regulation come to pass in the U.S., Toronto-Dominion is one of the financial stocks that should benefit. This member of Canada’s big five banks has a substantial U.S. presence.
Bank stocks in the U.S. have surged in value since Donald Trump’s election to the White House, and Canadian bank stocks have hopped on the wagon for some of the ride. In November, U.S. financial stocks gained 12.2 per cent, while Canadian financial stocks moved up 5.7 per cent, outperforming the S&P/TSX’s gain of 1.4 per cent.
Investors have become optimistic about bank stocks partly because Trump’s economic policies are expected to result in higher inflation, which will be good for the banks’ bottom lines. Then too, Mr. Trump is expected to reduce the regulations governing financial institutions, as he has promised to scrap the controversial Dodd-Frank Act, which was passed in the wake of the financial crisis of 2008 to 2009.
If higher inflation and less regulation does indeed come to pass, one of Canada’s big five banks that stands to benefit is Toronto-Dominion Bank (TSX—TD), with its substantial U.S. exposure. The bank recently released favourable fourth-quarter earnings, thanks in large part to strong growth at its U.S. retail business.
TD’s U.S. operations are substantial and growing
The bank reported that its adjusted earnings per share for the fourth quarter ended October 31 was $1.22, compared with $1.14 in last year’s fourth quarter. Canadian retail income rose 0.4 per cent to $1.5 billion, while U.S. retail income rose 17.8 per cent to $701 million. TD’s U.S. retail bank benefitted from revenue growth, strong operating leverage, increased loan and deposit volume, and good credit quality.
TD Bank’s chief executive officer, Bharat Masrani, has said if current conditions are sustained, the bank will be well placed to deliver in 2017.
TD’s shares have risen about 30 per cent from their 52-week low, so they’re less compelling now than they were earlier in the year. But the stock still trades at a reasonable valuation of 12.5 times TD’s projected fiscal 2017 (ends October 31) earnings of $5.11 a share. And its current annual dividend of $2.20 a share still yields a decent 3.5 per cent. TD Bank is a stock to buy for income and some growth.
Money Reporter, MPL Communications Inc.
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