Should You Consider Buying Toronto-Dominion Bank Stock While It's Below $60?

The stock market faced a quick downturn during the initial stages of the coronavirus pandemic, leading to a decline in share prices across various sectors. Toronto-Dominion Bank (TD), like many other companies, saw its stock price drop significantly. At that point, the stock reached as low as $34 but managed to rebound strongly to a peak of $85.

However, this upward momentum did not last long, and TD Bank soon experienced a downturn again, with shares now trading below $60. This situation raises the question: is now a good time to buy? The answer may depend on understanding the current context.

A Roller Coaster Ride for TD Bank

The onset of the pandemic brought a wave of uncertainty and fear, with strict social distancing measures and business closures leading to a recession that impacted economies worldwide. While many businesses suffered, banking services remained critical, meaning that TD Bank continued to operate relatively well. Given its status as one of Canada’s largest banks, it is also heavily regulated, which typically provides more stability during turbulent times.

Thus, it wasn't surprising to see TD Bank's stock rally once the market adjusted to the new normal of living with COVID-19. After hitting its lows, the stock rebounded impressively, but a significant development early in 2022 brought new challenges.

Bad News from the U.S. Market

TD Bank's difficulties stem primarily from failures in its internal controls in the United States, which led to serious allegations of money laundering. Such issues are detrimental to a financial institution. Initial signs of trouble appeared when U.S. regulators blocked a planned acquisition meant to bolster TD Bank’s presence in the U.S. market, a key area for its growth.

As the money laundering problems became known, investor confidence in TD Bank dwindled further. The stock price has since fallen back to levels not seen since before the pandemic began. This decline is understandable; along with losing the acquisition opportunity, TD Bank has had to deal with significant fines and costly upgrades to its operations.

Additionally, the bank is currently under an asset cap, which restricts its ability to expand within the U.S. The implications of this cap mean that TD Bank cannot grow beyond a certain point until it earns back the trust of regulators, a process that could take years.

A Dilemma: Stagnation or Opportunity?

Herein lies an intriguing aspect of the current situation. While TD Bank's core Canadian operations remain stable, the scrutiny in the U.S. means that its growth will likely be sluggish for the foreseeable future. This has understandably made investors cautious about holding or buying more shares of TD Bank.

However, the price drop also means that the bank's current dividend yield has surged to a notable 5.2%, a figure that is significantly higher than the average yield of 2.4% for banks. Given TD Bank’s solid financial standing, the risk of a dividend cut remains low.

If you are an investor looking for long-term stability and income, TD Bank presents an appealing opportunity, albeit one that may take time to realize fully. Although the bank isn’t poised for rapid growth shortly, those with a contrarian approach who are focused on income might find it worthwhile to consider investing in TD Bank while its shares are still below $60.

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