Tuesday, December 9, 2008

added to TD Bank

Last week I added to my large position in TD Bank (TD) at $41 per share. Even though TD made up a large proportion of my portfolio (about 8%), I thought the valuation level was too hard to resist. TD is the best retail Canadian bank and they derive a large portion of their earnings from Canadian retail banking. I also believe that TD's dividend is not at risk of being cut. The bank is currently yielding about 6% as of writing this.

An investment in TD or Royal Bank (RY) is similar to an investment in the Canadian economy, since these banks have a large, stable market share and derive a large proportion of their earnings from economic activity in Canada. I feel confident making this long term investment while we are visiting very low valuations due to the current credit crunch and recessionary outlook.

My three investments in TD Bank over the last year were made at $65, $55, and this recent tranche at $41 per share putting my average cost base (ACB) at about $56/share.

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7 comments:

Dividend Growth Investor said...

TD is the only canadian stock I own at this time. It also looks as the Canadian Bank with the lowest chance of cutting its dividends.

Glen Bradford said...

I’ve been sorting through companies and trying to figure out what exactly the implications of a debit balance on retained earnings implies.

The three companies I’m looking at are DRE, Duke Reality; XIN, Xinyuan Real Esate, and PRSC Providence Service Corporation.

Essentially, I’m trying to figure out the implications of unappropriated retained earnings --- and how it relates to stock price.

Case 1: DRE (Duke Reality)
When I look at their Balance Sheet through Edgar Online, it tells me their retained earnings are -804,744,000
Yet, Somehow, they’re pulling a dividend of 24%?

Case 2: XIN (Xinyuan Real Estate)
When they paid off their existing shareholders to go public in December of last year, their retained earnings went negative.
Now, they’re working to pull it positive. How would you justify this with respect to the stock price?

Case 3: PRSC (Providence Service Corp.)
They had some writedown that took their retained earnings from 39,493,000 to -101,301,000
From reuters: “In addition, a goodwill impairment analysis of the LogistiCare transaction initiated as a result of the Company's declining stock price is anticipated to result in a non-cash charge to earnings of between $90 and $120 million in the third quarter.”
I figure that means they paid too much.

Finance Matters said...

I just want to announce my new entry into the blogoshere. You, CC, Preet and others have inspired me to give it a shot. I'd appreciate any comments, suggestions etc you can give to a newbie like me. Is there somewhere to go to announce a new blog? How did you get yours going?

Anonymous said...

I like TD also, but as a US investor the dividends will be paid in Canadian dollars, right? and as a result I will get screwed due to the current exchange rate.

MG (moneygardener) said...

Finance, Welcome, and thanks for the comment. You can contat me privately if you'd like.

Doug Mehus said...

I think TD is an excellent investment. Though I've never held bank accounts at any Canadian bank besides Scotiabank and my current financial institution, HSBC Bank Canada, you're quite right - it is one of the best-managed and arguably the strongest of the Canadian banks. This, despite having the largest U.S. retail banking presence during the most challenging times in U.S. banking in several generations. Although, they've been very prudent with the banks they've bought in the U.S. Commerce Bank has some subprime mortgage exposure but it is manageable as they have a huge retail deposit base. As well, Banknorth I would say has some of the most affluent customers in the country.

I initiated a position in TD Bank at around $41 per share, purchasing 75 shares. I decided against buying a full 100 shares, to give me another opportunity to buy some more in the event the stock price goes down further. At the same time, I tripled the size of my holding in CIBC at around $43 a share, bringing my holding to 75 shares in them as well and my adjusted cost base down from $65 to $51 per share. Beyond that, I own 25 shares of Scotiabank but I'll raise that at the appropriate time.

Cheers,
Doug

Tyler said...

I agree with TD and Royal bank being the best of breed Canadian banks. I have a position in both as well as Scotia. I will be increasing my position in Royal Bank in 2009.