The Toronto-Dominion Bank

The business

TD is one of Canada's largest banks and runs one of the biggest branch networks on the U.S. East Coast (TD Bank, 'America's Most Convenient Bank'). It earns money in Canadian Personal & Commercial Banking, U.S. Retail, Wealth Management & Insurance, and Wholesale Banking.

It also holds a large stake in Charles Schwab, and has been returning capital after monetizing part of that position.

The moat

A large, low-cost deposit franchise on both sides of the border and a strong Canadian retail brand give TD durable funding and distribution advantages.

That moat is currently constrained: a U.S. regulatory asset cap limits the growth of its U.S. retail balance sheet.

Financial snapshot

Most recent reported period : Q2 FY2026 (ended April 30, 2026). Figures reflect the review date — confirm current numbers before acting.

Free cash flow yield & sustainable growth

Earnings yield : ≈7.3%≈ earnings yield (trailing P/E ~13.6)

As with any bank, free cash flow isn't the right yardstick — TD is better measured on earnings yield, ROE and dividend coverage.

It screens cheap for a reason: a P/E around 13–14x (earnings yield ~7%), a ~2.7% dividend yield and a ~45% payout as of mid-2026 reflect the U.S. asset-cap overhang, not weak current earnings (market cap ≈ C$200B+).

Sustainable growth is the whole debate: the OCC asset cap limits balance-sheet growth in TD's U.S. retail engine, so near-term growth leans on Canadian banking, wealth, cost discipline and buybacks rather than U.S. expansion. A low payout and cheap multiple give real re-rating room if the cap eventually eases.

See the full earnings-yield ranking →

Valuation & what to watch

TD has traded at a discount to peers like RBC since its 2024 U.S. anti-money-laundering (AML) settlement, which included roughly US$3.1B in penalties and an OCC asset cap on U.S. retail growth.

The debate is whether that discount is a lasting penalty on a structurally constrained U.S. business, or an opportunity if remediation succeeds and the cap is eventually eased. A strong Q2 and a high CET1 ratio give it capital flexibility.

Dividend

Raised the quarterly dividend to C$1.12 per share and repurchased roughly 19 million shares in Q2 2026, supported by a 14.3% CET1 ratio; the payout ratio sits near 45%.

Risks & the bear case

• The U.S. asset cap limits balance-sheet growth in a core market until regulators are satisfied.
• AML remediation is costly — TD guided to roughly C$500M of remediation spend in fiscal 2026 — and carries reputational overhang.
• Like all Canadian banks, TD is exposed to a slowing Canadian consumer and the housing market.
• Execution risk on leadership and strategy resets following the settlement.

Recent developments

Q2 FY2026 adjusted EPS of C$2.38 was up 21% YoY with all segments delivering positive operating leverage; the next report is scheduled for August 27, 2026.

Verdict

A high-quality deposit franchise trading cheap for a specific, known reason — the U.S. AML settlement and asset cap. The bull case is a re-rating as remediation progresses and capital is returned; the bear case is that the U.S. constraint proves sticky. Conviction: a turnaround/value idea within Canadian banks, higher-risk than RBC but with a clearer catalyst path.