TORONTO-DOMINION BANK $56 - Toronto symbol TD

TORONTO-DOMINION BANK $56 (Toronto symbol TD; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.8 billion; Market cap: $99.0 billion; Price-to-sales ratio: 3.0; Dividend yield: 3.4%; TSINetwork Rating: Above Average; www.td.com) is Canada’s largest bank, with $896.5 billion of assets.

On January 1, 2014, the bank became the primary credit card issuer for the hugely popular Aeroplan travel reward program run by Aimia Inc. (Toronto symbol AIM). As part of the deal, TD acquired half of the existing Aeroplan accounts from the previous issuer, CIBC (see page 75). It paid $162.5 million upfront and will pay $37.5 million annually over the next three years.

Thanks to this purchase, as well as steady loan demand in Canada and the U.S., TD’s earnings rose 13.5% in the quarter ended April 30, 2014, to $2.1 billion from $1.8 billion a year earlier. Per-share earnings gained 14.7%, to $1.09 from $0.95, on fewer shares outstanding. Revenue rose 12.5%, to $7.4 billion from $6.6 billion.

The bank set aside $392 million to cover potential bad loans in the latest quarter, down 6.0% from $417 million a year earlier.

The bank should earn $4.31 a share in fiscal 2014, and the stock trades at 13.0 times that estimate. The $1.88 dividend yields 3.4%.

TD Bank is a buy.

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