While valuation metrics and dividend yield appear attractive, the stock has underperformed peers like Royal Bank and CIBC. Until the Toronto bank outlines a credible path forward in the U.S. and demonstrates clearer momentum, TD is better suited as a hold for existing investors rather than a buy for new capital.
Toronto Dominion’s decision to walk away from its Schwab stake might seem like a straightforward capital reallocation—but in reality, it signals something deeper: a shift from long-term strategic ambition to short-term risk management. For a bank that once pursued aggressive U.S. expansion, the timing couldn’t be more telling.
There’s nothing inherently wrong with focusing inward, especially when your core Canadian operations are delivering record revenues and stable profitability. But the growing weight of TD’s U.S. anti-money laundering failures—not just in fines, but in reputation, opportunity cost, and leadership distraction—is starting to raise uncomfortable questions.
Chief among them: is TD still playing offense, or has it quietly moved to defense?
The Numbers Look Fine—Until You Look Deeper
On paper, TD’s fundamentals appear stable. Its dividend yield hovers around 5%, the P/E sits at 14.3, and its ROE remains competitive. The Canadian Personal and Commercial Banking segment is steady, Wealth Management is growing, and Wholesale Banking continues to gain ground. For investors chasing income and stability, these metrics are attractive.
But metrics without momentum can be deceptive. Compared to its peers, TD’s 5-year return of 48.33% trails Royal Bank’s 94.67% and CIBC’s 108.89%. That kind of underperformance, especially across a rising interest rate environment that should benefit bank spreads, hints at broader inefficiencies.
The AML-related issues and subsequent capital allocation decisions are part of the answer—but they’re not the entire story.
The U.S. Footprint: Asset or Liability?
TD has long touted its U.S. retail operations as a core pillar of future growth. That narrative is under pressure. A 61% drop in reported net income in the latest quarter, even if softened to -12% on an adjusted basis because of the AML issues, reflects deeper structural issues—ones that won’t be resolved by simply switching leadership or spinning off problematic assets.
The Charles Schwab exit, although framed as a means to redeploy capital, also suggests a retreat from optionality. That equity stake was TD’s most direct link to the broader U.S. wealth management ecosystem. Losing that exposure not only reduces diversification but also highlights how regulatory missteps in one area can curtail opportunities in others.
The Canadian Stronghold Isn’t Immune to Drag
It’s tempting to lean on the reliability of TD’s Canadian business. And yes, on a quarter-to-quarter basis, it’s performing well. But banks don’t operate in isolation.
Capital pressures, regulatory fines, and reputational risks from the U.S. operation can indirectly influence how aggressively TD can compete domestically. Whether it’s through share repurchases, lending standards, or tech investment, the bank may find itself increasingly constrained.
There’s also a subtle competitive challenge emerging. Royal Bank and BMO have pushed more decisively into the U.S., but with cleaner execution. That differential in performance—and in the market’s willingness to reward it—is becoming more visible.
Valuation Is Reasonable—But So Is Caution
TD’s P/E multiple and price-to-book ratio are well within historical norms. The dividend remains well-covered. For risk-averse investors focused on income, it’s understandable why TD might look attractive here.
But valuation alone doesn’t address strategic drift. What’s missing is a clear articulation of how the bank plans to reignite growth, particularly now that its U.S. ambitions are under regulatory scrutiny and its capital deployment options have narrowed.
Final Thought: It’s a Hold—Until the Bank Proves Otherwise
Toronto Dominion bank isn’t broken. But it’s not really all that compelling either. The dividend provides a cushion, and the Canadian business remains solid. Yet, without a credible strategy to stabilize and reorient its U.S. operations, the bank risks stagnating in a competitive sector where its peers are gaining ground.
For current shareholders, the best course may be patience, not conviction. For prospective investors, there may be more clarity ahead—but for now, Toronto bank feels like a stock that’s reacting, not leading.