TD Bank (TD) America's Most Convenient Dividend!

TD Bank (TD) is not only “America’s Most Convenient Bank”, but it’s also yielding a very convenient 3.35% in dividends. That yield is way ahead of American competitors, as compared to rivals Citigroup (C) which has no dividend, Bank of America (BAC) on a 0.25% payout, Well Fargo (WFC) on 0.70% and JP Morgan Chase (JPM) at 0.51%.

Headquartered in Toronto, Canada, with 74,000 employees in offices around the world, TD Bank (TD) offers a full range of financial products and services to approximately 18 million customers worldwide. The banks main brands in Canada and the United States include TD Canada Trust, TD Insurance, TD Waterhouse and an investment in TD Ameritrade. There’s also a securities division under TD Securities and of course, TD Bank (TD).

In the United States, TD Bank (TD) is one of the 15 largest banks in the U.S., with approximately 23,000 employees and deep roots in the community dating back more than 150 years. The Bank offers a broad array of retail, small business and commercial banking products and services to more than 6.5 million customers through its extensive network of more than 1,000 retail locations throughout the Northeast, Mid-Atlantic, Florida and Metro D.C.

TD Bank’s (TD) latest quarterly dividend came in at $0.61 for a fiscal year 2009 total of $2.44. The 2009 dividend was 3.38% above that of 2008. Over the last five years the dividend has grown at a very impressive 12% annually. This is despite earnings declining by 14% in 2009, and a pretty dry run in terms of earnings per share, which are still down from 2007 levels (although much less than in the case of Citigroup (C) or Bank of America (BAC)).

The company trades on a price to earnings of 15.27 times, and a price to book of 1.78 times. The PE ratio is higher than other banks due to the expectation that earnings will increase this year at a higher rate. The price to cash flow ratio is 12.22. Based on the operating profit margin TD Bank (TD) converts an above median percentage of its revenues to profits compared to other banks. The company also exhibits a return on equity that is more than double the average of the industry, at 11.4%.

The question in every conservative investor’s mind at this point should be: given the recent banking and credit crisis we’ve seen, is investing in a bank a good idea? The answer is “it depends which bank”. The income-seeking investor is not looking for huge capital appreciation (as would be the case with investors in Citi (C)), but rather a reliable and sustainable source of dividend income. Compared to U.S. peers, TD Bank (TD) certainly appears the better option.

The comparison is dramatic when one compares the bad loans between banks. TD Bank’s (TD) loan loss provisions as a percentage of net loans was 0.14% in the latest quarterly results, while Citigroup’s (C) was a mammoth 1.24%.

This is just one measure where TD Bank (TD) outshines, and there are many more. It can be clearly seen that TD Bank (TD) has a loan book of much superior quality and thus a business that is many times more likely to keep paying out regular dividends to shareholders that increase over time.