Is it time to invest in TD?

Four years ago Global Finance rated the world's safest banks. Search the article for a mention of Credit Suisse or Silicone Valley Bank; you will come up blank. I find this reassuring. 

Now, do a search for TD Bank or Royal Bank. Royal is in the 12th position and TD follows. Both carried very high ratings from Fitch, Moody's and S&P at the time this article was written. Both still carry these high ratings today.

At the close Friday, TD finished at $77.90. Investors taking advantage of that low price were rewarded with a yield of just more than 4.9%. Note: Canada's biggest banks as a group have a history of never cutting, or even reducing, their dividends. That TD yield is safe.

A retiree investing $50,000 in TD Friday could count on an annual income of $2464.50. He or she might watch that investment shrink over the coming days but the yield should be safe. Why might the TD stock price continue to spiral downward? Herd mentality. The herd is skitterish when it comes to banks, especially smaller U.S. banks, and TD is tainted by its connection to First Horizon Corp.

BNN reports, "First Horizon Corp. fell by the most since September 2008 as the crisis in regional banks cast doubt on whether Toronto-Dominion Bank will follow through with its planned US$13.4 billion takeover of the lender."

The BNN article continues, "First Horizon declined as much as 33 per cent Monday morning and (trading) was briefly halted due to volatility. The stock pared losses but still ended the day down 20 per cent at US$16.04. That’s about 36 per cent below TD’s takeover offer."

There are two rules guiding stock buying that seem to be in conflict at times. The one rule says do not try to time the market. The other rule is do not catch a falling knife. TD is down 25% from its high of the past year. TD stock is well into bear territory. The other day, I bought a few hundred shares. I decided to not try and time the market. I'll accept some short term loss.

Adding to the complexity of the situation, TD owns about 10% of Charles Schwab. Today, Schwab stock price has descended well into bear market number territory thanks to all the unease in the U.S. financial sector. TD is left tainted yet again.

If the TD descent should continue too long, if it should become clear that I caught a falling knife, I will look to a third stock buying rule: average down in a declining market. I will consider buying more TD stock. I might even go overweight financials with the goal of selling the extra for a capital gain realized inside an RRIF. The present TD target price forecasts a capital gain of about 25%.

For the moment, I am taking heart in the headline in the March 18th Globe and Mail. It called TD stock among the top 10 undervalued large cap stocks on the TSX.

 

Addendum:

One last thought. There are financial experts forecasting a recession in the not too distant future. If a recession should materialize, all stocks will lose value. The applicable rule here is not from the financial world but from The Hitchhiker's Guide to the Galaxy: Don't panic!