Q2 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 stocks have a market capitalization of nearly $ 160 billion and a dividend yield of 3.6%. Through it all, TD Bank stands out for its strength south of the border and its ability to increase efficiency. Many of us at Motley Fool have enjoyed TD Bank stocks for a long time. Today, it is even clearer why.
TD shares rally as second quarter profits rise
TD Bank stocks have been strong throughout the year. In fact, in 2021, TD’s stock price rose more than 20%.
This makes sense, given the results posted by TD Bank over the past few 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 retailing in the United States, the numbers were even more impressive, with segment profits growing almost 300%.
The main reason for this impressive performance was the decline in provisions for bad debts (PCL). We also see this in other banks. Basically, the pandemic hasn’t hit businesses and consumers as hard as feared. Today, they have proven to be resilient. Government support programs supported them, as many found new ways to survive and thrive. TD’s stock price responded by hitting new highs.
Credit losses: stabilization and even reversal
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. So, now the banks are posting PCL recoveries that benefit the bottom line. In the second quarter, TD Bank recorded a PCL recovery 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%.
Are TD Bank Stock About to See Huge Dividend Rise?
Canadian banks are thriving today for many reasons. For example, it benefits from the recent stimulus that has been injected into the economy. In addition, banks benefit 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 Q2 results yesterday in a Motley Fool article. BMO reported 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 dramatically, meaning there is ample room for significant increases in dividends.
Since 1995, TD Bank has experienced 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 profits would indicate that this rate of growth will accelerate.
Economic recovery = rising interest rates
Banks have been hit by low interest rates for quite some time. During the pandemic, this hit net interest margins hard. With an economic recovery on the doorstep and set to accelerate in 2021 and 2022, banks like TD Bank can now look forward to more good news. Interest rates will likely rise to keep inflation at bay. This means that TD’s net interest margin will start to increase, which will bring more money into 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 proven his resilience. With the help of the government, people have large sums of money. As the economic recovery gains momentum, we can expect Canadian banks like TD Bank to continue to make big profits.
The post office TD Stocks (TSX: TD): Second Quarter Results Confirm Growth in Banking Services appeared first on The Motley Fool Canada.
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Silly contributor Karen thomas owns shares of TORONTO-DOMINION BANK.