Toronto-Dominion Bank (TD.TO)

Thinks they are going to split. They are in danger of getting to $100 and banks tend to split the stock when they get close to $100. Research shows that a split is a temporary 3-6 month positive by 1%-2%. Statistically and numerically it should have no impact. It is a sign that things have been pretty good.

What attracts you to this bank through all its changes? Has always been a fan of retail banks as opposed to the wholesalers of the capital markets, so he would rank this, Royal Bank (RY-T) and Bank of Nova Scotia (BNS-T) as the top 3 of the 5 that he would be interested in. As a retail group, they have less risk, usually have higher margins and don’t have to worry about loan-loss provisions to a huge degree. Their higher margins in the retail operations side are not as cyclical and, as a result, this bank has been able to grow its business where now, almost half its revenues are coming out of the US. Has had the best dividend growth compared to all the other banks in the last 10 years and has averaged an almost 20% clip.

The other banks are fine but he likes this for its US focus. The US in general has turned the corner and things are slightly better than in Canada because their consumer has had 5 years of deleveraging. Excellent balance sheet. Aeroplan deal has really moved them forward in terms of credit card operations. Has the least capital market exposure. Above average dividend growth and a strong operating platform. Yield of 3.54%.

Which Canadian bank would you recommend? In his private client business, he owns the Royal (RY-T) and Toronto Dominion (TD-T). He thinks these are the 2 best banks in Canada with the best opportunities. They’ve done incredibly well and he thinks it will continue to do well. Not expensive. You get a great yield and thinks you will get an increase in the payout ratio for these companies. There is a great opportunity for them to trade at higher multiples than they are currently. More than half their revenue comes from the US now.

He would Hold and Buy all of the banks.

All Cdn banks are hitting at least 52-week highs and in some cases, all-time highs. That puts them back to where they were 5-6 years ago. The correct tactic is to buy the one that has gone up the least or gone down the most the previous year and vice versa. You can buy this one, stick it in the bottom drawer and forget about it. They’re raising dividends again. Have the big US presence. Best performer over the last decade.

Tradition is that when they get to $100 they split, but the Americans don’t, so he doesn’t know what they will do. $100 is fairly valued, however.

Likes their US banking side. There was some talk that they were going to buy into a major US bank, Citizens Bank, which is in the North/East, but has 1400 branches, which might be too big a bite so he is a little concerned about that. So far the US expansion has worked very well for them. They have more branches in the US than they do in Canada.

Great exposure to the US. Not widely appreciated, there are a vast number of US chequing account holders that don’t have mortgages with them so allows for cross selling. They invest heavily in technology to keep costs under control.

He owns 4 banks. Good US franchise. It should be in a portfolio.

Will likely split. Ranks at the bottom of his top ranking. Have done very well and he thinks they will continue to do so. Our housing market did not blow up. Earnings from banking and from capital market sides are rising.

Canadian Bank but becoming more and more a US banks. Operations in the US have been doing well. He prefers US banks, but if you like to invest just in Canada, then buy TD.

(A Top Pick Oct 29/12. Up 26.32%.) Bought April $80 Calls at $4.75. This is a strong bank and is going to do really well. He would just hang onto these. You have until January 2015 so there is lots of time. He expects the stock will be over $100, which would give you a double on the original position.

This stands out as one of those banks that is diversified. It has earnings in Canada and has significant earning power in the US and is going to do quite well. Also brought in the Aeroplan on its credit card which will add a significant amount to them.

Floating-Rate Preferred, Series T (TD.PR.T-T). Given what the market has been doing recently, he wanted to be a bit more defensive so has started to slowly build up his floating side. This is at a predetermined spread of 160 basis points over the government of Canada T-Bill. As the rates start to rise, this will go up. Paying about 2.60%-2.65%, which is more of a money market type. It is a dividend, you are getting, not interest so it would be about 3.5% of a money market type of paper.