TD Bank Battles Challenges After Tumultuous Stock Performance
The broader stock market quickly dipped into a bear market at the onset of the coronavirus pandemic. Toronto-Dominion Bank‘s (NYSE: TD) share price followed suit, plunging like most stocks during that time. However, TD Bank saw a strong rally afterwards, reaching a peak of $85.
Unfortunately, the trend reversed, with the stock now trading below $60 per share. Is this a chance to buy? Perhaps, but investors should tread carefully.
From Highs to Lows: The Rollercoaster of TD Bank’s Stock
In the early days of the pandemic, uncertainty and fear loomed large. With government mandates for social distancing and the closure of nonessential businesses, a recession was inevitable. This economic environment impacted nearly all businesses, including banks. Yet, despite the turmoil, TD Bank’s operations remained relatively strong.
Image source: Getty Images.
Banking is essential; operations couldn’t simply halt. Being one of Canada’s largest banks, TD Bank benefits from a highly regulated environment, giving it a stable market position. Therefore, when COVID-19 became manageable, it was no surprise that TD Bank’s shares rebounded sharply.
Initially, TD Bank’s shares dropped to about $34 during the pandemic bear market. In roughly a year, they surged up to $85. However, early 2022 brought troubling news that shifted investors’ perspectives on the bank.
Regulatory Issues Weigh on TD Bank’s U.S. Growth
In a concerning development, TD Bank faced scrutiny when internal controls in the United States failed to prevent money laundering. This was more than just a minor issue; it significantly tarnished the bank’s reputation.
The situation escalated when U.S. regulators blocked an acquisition TD Bank had planned. Although the bank is a major player in Canada, it sees the U.S. as a key area for growth. The blocked acquisition left investors apprehensive about TD Bank’s longevity in the U.S. market.
TD data by YCharts
As more details about the bank’s lapses emerged, its stock price continued to drop. Today, shares sit close to their pre-pandemic levels. The bank is not just saddled with fines and the burden of upgrading its internal systems, but it also now faces an asset cap imposed by regulators.
This asset cap restricts TD Bank’s growth, allowing it to operate at its current U.S. size only until regulators feel confident enough to lift the restrictions. This trust recovery may span several years, effectively stalling the bank’s growth trajectory in the U.S. market.
TD data by YCharts
Investment Outlook: Opportunity or Risk?
Despite the difficulties affecting its U.S operations, TD Bank’s Canadian framework remains robust. It’s evident that growth will likely proceed at a slower pace for an indefinite period, which has led many investors to steer clear of the stock.
However, with the recent price drop, TD Bank’s dividend yield has increased to a noteworthy 5.2%, significantly higher than the average 2.4% yield among banks. Financially, TD Bank remains strong, suggesting that its dividend payments are likely secure.
A swift recovery isn’t on the horizon. Experts believe 2025 could be particularly challenging as the bank navigates its U.S. asset cap. This reality presents more obstacles for growth investors in the coming years.
If you lean towards income-focused investments, TD Bank’s path to recovery appears relatively low-risk. You may enjoy a solid yield while awaiting the bank’s gradual return to growth, making TD Bank a potentially appealing choice for long-term dividend investors looking to buy while shares trade below $60.
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Reuben Gregg Brewer has investments in Toronto-Dominion Bank. The Motley Fool does not hold positions in any of the other stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
