Fellow Fools, when I run across a company I might be interested in as an investment -- one that I know next to nothing about -- I typically start my investigation by just jumping in and taking a quick look around. And that's how I've des...
Fellow Fools, when I run across a company I might be interested in as an investment -- one that I know next to nothing about -- I typically start my investigation by just jumping in and taking a quick look around. And that's how I've designed this "7 Things You Need to Know" series: a quick scan of the facts, in no particular order, that gives you -- the potential investor -- a mix of high- and low-level takeaways.
TD Bank ? I've heard of it, but I know next to nothing about it. So here's the start of my personal investigation into TD.
1. TD Bank is Canadian Toronto-Dominion. That's what the "TD" in TD Bank stands for. TD is headquartered in Toronto, Canada, and was founded in 1855. So it's important to remember that an investment in TD is an investment in a foreign-owned corporation.
But we are talking about Canada, here, which has a far more regulated banking system than that of the U.S. This is one of the reasons Canada's banks didn't get into the same kind of trouble ours did in the financial crisis.
2. TD Bank is bigger than you think A visit to the Federal Reserve's National Information Center tells us that TD is the 14th largest bank-holding company in the U.S., farther up on the list than American Express or SunTrust . TD has a big American operation, so this isn't surprising; it runs 1,315 brancs from Maine to Florida, almost as many as SunTrust in its region. Used skillfully, a bigger bank can generate greater revenue and profit than that of a smaller rival.
3. Eye-popping return on equity Return on equity, or ROE, is a measure of management efficiency, and it gives you some idea how much profit a company generates with shareholder money. TD's ROE is an eye-popping 14.04% trailing 12 months. Lean, mean comrades-in-banking JPMorgan Chase and Wells Fargo have ROEs of just 11.55% and 13.07%, respectively. Go, Canada.
4. Eye-popping profit margin Is there any greater measure of management efficiency for a corporation than how well it converts revenue into profit? TD does this extremely well, with a profit margin of 30.64% TTM. Again, JPMorgan and Wells only manage 24.90% and 24.82%, respectively.
5. A mixed quarter For the most recent quarter, TD grew its revenue by 4.10% and its income by 1.80% year over year. The revenue growth is actually impressive. For its most recent quarter, JPMorgan only grew its revenue by 1.20%, though it did squeeze 32.60% income growth out of that. Wells did a similar trick, squeezing 21.70% of income growth out of revenue growth of just 2.00%. Those tricks, though, are undoubtedly the result of heavy cost-cutting, as all the big American banks are currently slimming down from their 1990s and 2000s bloat period. Big earnings growth out of small revenue growth just isn't sustainable.
6. Solid share-price performance Over the past year, TD stock has gained 4.97%, enough to keep up with the S&P 500 on an annualized basis. This is actually good performance for a bank, though it's not what we're used to seeing here in America of late. Since the financial crisis -- which again, Canada and its banks didn't experience like us -- American bank stocks have gone through the roof. They also had fallen farther, both in monetary value and in reputation. In some respects, the big American banks had nowhere to go but up.
So, sure, Bank of America stock has gained 70.23% over the past year. But as American banks become more stable, and therefore get back to being boring in the style of their northern cousins, it's unlikely those kinds of returns will continue.
7. A great dividend TD currently pays an annual dividend yield of 4.00%. JPMorgan and Wells Fargo pay 2.90% and 3.00%, respectively. Healthy, but not TD Bank healthy. B of A pays 0.30%, and Citigroup pays just 0.10%.
Foolish bottom line TD Bank is big enough to matter, Canadian enough to be stable, has eye-popping efficiency metrics, and pays a nice dividend. From a share-price appreciation perspective, it's no B of A, but it doesn't face B of A's