TD Stock (TSX: TD): Second Quarter Results Confirm Banking Boom

Toronto-Dominion Bank (TSX: TD) (NYSE: TD) is one of Canada’s largest banks. It is also the fifth largest bank in North America. TD stock has a market cap of nearly $ 160 billion and a dividend yield of 3.6%. In all of this, TD Bank stands out for its strength south of the border and its success in efficiency. Many of us at Motley Fool have loved TD Bank stocks for a long time now. Today, it is even clearer why.

TD stocks rally as second quarter profits soar

TD Bank stock has been strong throughout the year. In fact, in 2021, the TD stock price has risen by over 20%.

This makes sense, given the results released by TD Bank in recent quarters. The second quarter showed an acceleration of positive trends. Trading volumes and account openings reached record levels during the quarter. Patrimonial assets have climbed by more than 20%. In US retail, the numbers were even more impressive, with segment profits up nearly 300%.

The main reason for this impressive performance was the decline in provisions for credit losses (PCL). We also see it in other banks. Basically, the pandemic hasn’t hit businesses and consumers as hard as feared. Today, they have proven themselves. Government support programs supported them, as many found new ways to survive and thrive. The TD share price responded by hitting new highs.

Credit losses: stabilize and even reverse

I would like to talk a bit about PCL’s situation at TD Bank. It was the biggest problem in 2020 when the pandemic hit. As a result, TD Bank, along with other Canadian banks, took significant PCL charges which affected earnings.

Today, vaccines are reaching the Canadian population. The United States has already started to reopen. Although economies have been hit by the pandemic, it has not been as bad as initially feared. As a result, banks are now showing PCL collections that benefit the bottom line. In the second quarter, TD Bank recorded a bad debt collection of $ 377 million. This compares to the $ 3.2 billion provision last year. Second quarter adjusted EPS was $ 2.04 compared to $ 0.85 last year. This is a growth rate of 140%.

Is TD Bank Stock Ready for a Huge Dividend Rise?

Canadian banks are thriving today for many reasons. For example, it is taking advantage of the recent stimulus that has been injected into the economy. In addition, banks profit from an extremely liquid consumer. Finally, a recovering economy lifts all the banks.

As a result, Canadian bank profits are skyrocketing. I wrote about the Bank of Montreal’s second quarter results in a Motley Fool article yesterday. BMO posted an 80% increase in adjusted earnings. TD Bank has done even better. So the question becomes, “What are the banks going to do with all this excess cash flow?” Payout ratios have fallen sharply, meaning there is ample room for significant dividend increases.

Since 1995, TD Bank has had an annualized dividend growth rate of 11%. Banks have been regulated to stop raising dividends during the pandemic. But longer term, this story of dividend growth shows no sign of stopping. In fact, booming earnings would indicate that this rate of growth will accelerate.

Economic recovery = rising interest rates

Banks have been penalized by low interest rates for some time now. During the pandemic, it hit net interest margins hard. With an economic recovery on the doorstep and expected to accelerate in 2021 and 2022, banks like TD can now look forward to more good news. Interest rates will likely rise to contain inflation. This means that TD’s net interest margin will start to increase, bringing more money to the bottom line.

Motley Fool: The Bottom Line

Canadian banks are booming. TD stock is also booming. The latest earnings result shows why. The consumer has been shown to be resilient. With the help of the government, people are sitting on large sums of money. As the economic recovery deepens, we can expect Canadian banks like TD Bank to continue to make big profits.

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This article represents the opinion of the writer, who may disagree with the position of an “official” recommendation of a premium Motley Fool service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .

Foolish contributor Karen thomas owns shares of TORONTO-DOMINION BANK.

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