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Toronto-Dominion Bank (TD) is a Top Dividend Stock Right Now: Should You Buy?

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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Toronto-Dominion Bank in Focus

Headquartered in Toronto, Toronto-Dominion Bank (TD - Free Report) is a Finance stock that has seen a price change of 1.08% so far this year. The retail and wholesale bank is paying out a dividend of $0.59 per share at the moment, with a dividend yield of 4.16% compared to the Banks - Foreign industry's yield of 2.07% and the S&P 500's yield of 1.48%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.37 is up 2.7% from last year. Toronto-Dominion Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.68%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Toronto-Dominion's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for TD for this fiscal year. The Zacks Consensus Estimate for 2021 is $4.65 per share, with earnings expected to increase 16.54% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that TD is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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