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Why Toronto-Dominion Bank (TD) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

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 -13.47% so far this year. Currently paying a dividend of $0.71 per share, the company has a dividend yield of 4.29%. In comparison, the Banks - Foreign industry's yield is 3.89%, while the S&P 500's yield is 1.76%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.85 is up 13.6% 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 8.26%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Toronto-Dominion's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, TD expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $6.40 per share, representing a year-over-year earnings growth rate of 1.75%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TD is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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