Toronto-Dominion Bank (TD.TO)

Best run Canadian Bank with good operations in the US. Would not worry unless they did another big acquisition down there. No point in paying the tax on all the gains.

There is going to be a gradual increase in earnings at a corresponding increase and dividend rates. This is a long-term hold. In this market, with all the uncertainties and potential frothiness, he wants something that is going to deliver almost 100% certitude long-term dividend growth.

Preferred Y. 3.5595%. Basically, you are out for 5 years and as the price it trades at, just above Par of $25 gives you about a 4.7% increment yield. There are $7.2 billion preferred shares that are most likely going to get called, in the next 12 months. That represents 13% of the overall preferred share market and, more importantly, over 20% of the rate reset preferred shares that are outstanding. As these get taken out, they have to find a home and he thinks this is one that is going to get a lot of capital going to it.

Earnings are coming soon. Banks have had a heck of a good run and he thinks there is still good news to come, but is more inclined to think banks will go sideways than to continue this run for too much longer. When Canadian banks get close to the $100 mark, they often times will split. He might trim his holdings in Canadian banks, but would keep a core position.

Very strong in Canada. #1 or 2 in domestic retail and wealth management. The kicker for them is their branch system in the US. That whole branch system is now turning around. Deposit growth has been spectacular for them. As the economy improves, he thinks the loan and mortgage portfolios will build. Interest margins in the US should expand and probably at a faster rate than in Canada.

(Market Call Minute) Canadian banks had a tough year as Americans shorted them fearing a housing collapse.

Has been touching new 52-week highs. In all likelihood they will split the stock in the next while. Whether it is the next month, 3 months, 6 months he doesn’t know. What he particularly likes about this bank is that they have the lowest payout ratio of any of the banks. This means dividend growth will be higher than per share growth.

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.