TD Stock Still A Buy | Canadian Bank Stocks Drop On Earnings

TD stock is getting ripped to shreds and we need to talk about it because it all relates to their earnings which I have never been more bullish on I think people are recognizing it cuz after the dip the stock has been nothing but picked up year-to date still trading down 7.85% yet I'm still incredibly bullish on the sector as we head into an earning cycle for the Canadian Banks as a whole so let's walk through TD Bank First and for most then we'll take a look at all the banks to see how they're performing together and if that is a conversation you appreciate Dam it hit that like button on your to financial Independence the damn well one day retire early cuz TD Bank set aside an additional 2.6 billion to cover the US regulatory penalties over the anti-money laundering control now this is the headline that is driving their earnings and essentially TD is now bracing for historic fine of more than 3 billion us including provisions of 450 million us that it earmarked in April to settle investigations from multiple us Regulators or Regulators the total potential fines would deal a landmark blow to Canada's second largest bank TD has the financial resources to absorb it but the hit is severe enough that the bank was compelled to sell shares it owned in another major financial institution to ensure that its capital reserves stay above a minimum threshold set by the Canadian Bank Regulators again all this sounds super bearish but we'll break it down it would be the largest penalty that a Canadian bank has paid in the United States and is believed to be the second largest US regulatory penalty uh levied against the the bank over similar issues so TD will record the provision as part of its fiscal third quarter results which will be released on Thursday and here we are baby it's Thursday so let's get into it with first and foremost saying that the stock price right now it it almost directly is following the earnings right like nobody cares about Revenue right now no one cares about the future of TD it's all caught up in the headlines and you can see that the stock price over the Last 5 Years had this massive runup and then a decline that perfectly resembles uh what's been going on with the EPA we're going to take a look at revenues in a moment but when you look at the dividend uh payout here not only is the dividend still sustainable but it is at a record high never seen in their entire history of basically being a publicly traded company and I really want that to resignate with you because this is the second largest company in Canada and we've never seen a yield that is at a whopping 5.19% as of today uh which is insane right like that if this thing ever starts to rebound your rate of return is going to be so ridiculous cu the dividend I mean honestly if you even get a few percentage Point bump over a year I mean you're talking about a market average return of 8% right so the dividends have been very stable increasing still and I'm surprised we increased it going into 2024 I'll it' be really neat to see if they continue to increase it and they've also been buying shares back right it's not like they haven't been you know taking shares off the table as well there's a lot of good things going on with this company sustainable yield we're talking about share repurchasing a whole slew of things so how does this bleed into the earnings just take a look at Revenue this is why I'm so bullish at$ 41.7 billion versus 37.5 billion this time last year just for the 9mon end and it shows you in the backdrop of a more competitive and financial environment you see it with PayPal all these companies are competing cash app and then on the banking side you have these smaller Banks like EQ Bank Sofi I mean even Robin Hood is playing in the space when you talk about commission free trades that TD has been competing against and I noticed that they were releasing some promotions lately if you open up a trading account um and you fund it with a certain amount that they're going to give you like x amount of free trades like they're they're starting to run promotions like that just try and remain somewhat competitive but this just shows you how strong the financial markets truly are and what's been killing them Provisions for credit losses continue to be 1.07 two billion this quarter just the last quarter uh before was 1.71 billion so it's not really increasing it's leveling off but as renewals come into play and a lot of mortgage renewals are coming up it's going to put a lot of risk on like the quality of that credit if they're making higher payments which causes higher loan loss provisions and I keep stating that if this ever starts to level off or decline we are heading back into a new bull market the non-interest expense however jumped dramatically to 11 billion versus 8.4 billion just this time last quarter so that's probably playing into perhaps some of these fines that they're putting aside and trying to protect themselves which is you know really killing uh the net income side of things but they're still in a great place from the growth right like the growth is offsetting a lot of this because if we scroll down first and foremost the dividend payout ratio remains strong at 90 near 49.7% on earnings of $25 for $24 so if it wasn't them putting that huge expense aside their earnings would have been insanely nice and as mentioned you know when the Stock's following the earnings price you have to presume at some point in the damn future things are going to level up the fines are going to stop the loan loss Provisions are going to stop rising and where I feel like we're on the cusp of it damn it as interest rates begin to cut and typically higher interest rates benefit Banks better but not with these expenses not with these Lan losses we need to get through this and I'm highly confident we will considering you know if you go back to July 31st of 2023 they only did 12.9 billion we're at 14.1 damn it we got to start actualizing some of this sooner or later it has to happen and I'm just saying like the rate of return is going to be beautiful look at the proven business models here firstly Canadian personal and Commercial Banking has been growing which is great on the US retail side personal loans and business loans increased 8% whereas personal deposits and business deposits uh didn't really grow at all together they dropped 3% right Global wealth assets have increased 9% however in the Canadian side of the border which is interesting credit card spend is down well this just shows you that people don't want and it's weird because you think with credit cards people would already be used to high interest rates but it's shocking to see that you know credit card spending is just down us business banking line of credit utilization is up TD direct investing average trades have actually started to decline in this quarter even though they've been up for the first two quarters of q1 and Q2 very interesting stuff here right so the data you know as a whole it's not really bearish it's not terribly bullish but we're in a good place and I think the future of growth for this company maintains in the death of brick and mortar as many banks have been closing traditional retail Banks because you look at the adoption of you know using mobile apps I use TD app I use I do all online banking and that is continuing to increase a double- digit basis points or you know double digit percentage points here so you have to recognize that that's the future and it's going to continue to lead to probably a lot of substantial growth as they can cut cost on that end right Provisions for credit losses we break it down by segments total Banks I mean we're talking about um for Q like I mean you just look at the increase from 766 million to that you know 1.72 billion we talked about with Canadian and personal and Commercial Banking uh continues to actually well decrease for the first time which is incredible um so you know Canadian personal and this is really interesting if it has to do a lot with uh you know mortgages too I'm curious to what plays into this but we're starting to see a decline there us retail uh is declining or flatlining wholesale banking has increased dramatically uh which is intriguing to say the least corporate has actually decreased I feel like we're heading in the right direction here folks a lot of these numbers say things are looking better we're leveling off the trends are getting better the headlines continue to be absolutely catastrophic for this company which is what's been driving the stock down but again people are recognizing it I'm sure as a potential buying opportunity here so what does this mean for the rest of the banks is that we are in incredibly bullish situation um if loan losses are leveling off for TD it's likely they're leveling off for the rest of these companies it's likely if they're not dealing with the same the same fine TDS are and the earnings remain strong which for most of the banks revenues have been increasing I feel like we're on the cusp of where we're going to finally start seeing perhaps better than average returns from these Banks um because we're starting to see a nice jump in the big ones right like Royal Banks up 14.8% Nationals up 17.9 even in can Canadian imperial's up 13.8 with the exception of Bank of Montreal and TD that's lack lustering here again this is why they're like Pokemon cards they're going to goes through their own cyclical Cycles but you want to own them all they're the most regulated banks in the world they have survived every damn recession and every like major crash better than any of the US financial institutions have and if you take a look at the global x equal weight Bank ETF year to date we are now 5.24% you are averaging right now 4.6% yield you were closer to five when you were buying the dips um so it's very likely that you know if you tap on an extra two two and a half percentage you know rate of return over the six months just with the dividend you're getting Market average return returns here 7 to 8% and again we're only halfway through the year we've still got some earnings and it's going to be neat to see um what the the rate of return starts to look like here I get my exposure to this through vdy which many of you know and the reason I like vdy so much is because of the the concentrated exposure to the financial sector and I'm really speculating let's just see what the waiting of TD is in here right now and I'm still speculating as TD starts to recover and I'm very confident that it will over time that the rate of return of this is going to you know continue to go up nicely and this is being offset by again the return in some of the energy stocks um in Royal Bank but look at the financial exposures uh basically 55% and I love this I live for this because it's my way of collecting these Pokemon cards you got Royal Bank TD loone making up 25% so these two stocks one quarter of my money in here is dictated by what these two stocks are going to do and in the financial sector as a whole you got beo in here at 5.9% Bank of Montreal there's another 10% waiting just between those two Banks uh which is nice you know that takes us up to from 25 what is that from from 25 35 45 we're almost at 50% with those three Banks and you got Canadian Imperial I love this I live for this ETF for these reasons but I'd love to pass the question off to you when it comes to TD Bank what do you guys think here you think we're finally starting to see the end here's the leveling off finally starting to happen these are the bottoms for TD or you think there's more pain to come let me know what you think in those comments sections below