Why investing in this Canadian bank is a good move

Young Canadians may need to consider holding some quality dividend stocks

Why investing in this Canadian bank is a good move
Young Canadians who want to set aside ample cash to afford themselves the luxury of a comfortable retirement may need to consider holding quality dividend stocks inside their TFSAs and RRSPs.

Andrew Walker from the Motley Fool Canada said one strategy involves reinvesting the distributions of such stocks in new shares.

He explained how the power of compounding can work wonders and that investors could see modest initial contributions grow to be significant savings.

"All Canadians can benefit from the compounding process, but time is the key factor for success, and young Canadians have an advantage in that respect," Walker said.

One stock that these millennials can consider to include in their TFSAs and RRSPs is that of Toronto-Dominion Bank. For starters, the bank reported a third-quarter net income of close to $2.8 billion.

And while the bank is known for its Canadian operations, it has a significant presence in the United States, allowing investors to be exposed to another powerful market.

In fact, the bank has more branches south of the border than it does have locally. Its US retail division shared US$678 million in net income in the past quarter, making the bank attractive to investors who want a hedge against the potential weakness in the Canadian economy.

The bank also faces lower risks compared to its peers. Some of the staunch critics of TD Bank said big players are too exposed to the domestic housing market. However, looking at its portfolio, this is not the case.

While the bank's residential mortgage portfolio is large, insured loans only represent 44% and the loan-to-value ratio on the uninsured mortgages is 53%. This signifies that house prices have to fall harder before TD can feel a material hit.

"TD is also widely viewed as the safest choice among the Canadian banks due to its focus on retail banking operations, which tend to be less volatile than capital markets activities," Walker said.

He added that companies with the same qualities as TD should definitely be among investors’ picks for a dividend-focused RRSP or TFSA retirement fund.

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