TD Stock – Which is better – Common or Preferred?

In this video we examine TD preferred and common stock to see which one is best. We make the decision based on today’s latest data.

The conclusion will change over time, based on changes to preferred and common stock, but the process of arriving at the decision is the same.  

For this video I will use the premium site. Similar information can be found on the free site but not all of it in a single web page.

Lets go to the TD Ranking page.

All metrics and data analytics fields shown in this page are updated daily (Monday to Friday) based on the latest market data for TD.

Notice the navigation buttons at the top of the page. These allow jumping to the start of each section, making it easier to compare information between each section on the page.

Go to the top of the page using the “UpArrow” .

Scroll down the page to review some of the metrics we use.  Go to section “TD Common Share Metrics”.

Lets look at some of the yield related metrics, relevant to our current evaluation.

As you can see the current yield on the common is 4.41%.

In the section “TD Overall Preferred share Metrics” we see the following metrics:

• The Lowest Current Yield is: TD.PF.E @ 3.48%
• The Highest Current Yield is: TD.PF.G @ 5.42%
• The Average Current Yield is: 4.66%
• The 5year Reset Average Yield is: 3.68%

Let us compare TD yields to the Banking sector averages. From the menu select “Market Review”.

As you can see Today’s Average Market Yield is 5.46%. This is the average yield across all preferreds. TD’s average preferred yield is almost 1% less.

In The section “statistics by sector”, locate the Banking sector.

The sector has an average Current Yield of 4.68% and Reset Yield of 3.84%. TD yields are very close to the averages.

Let’s go back to the “Rank TD Preferreds Page” and the “rank – compare tool”.

In the section “Rank TD Preferreds – Compare Tool”, you can see that we have a lot of metrics, but for this decision we choose to use the “blended Yield” only.

The “blended yield” is a projection of the average yield for the next five years.  We will be comparing this to a similar metric of the common stock. 

To begin with, let’s review the table by “Blended Yield” (highest yield 1st). As you can see TD.PF.G preferred  has the following yields: the current is (5.42%); the reset is (5.00%); and the blended is (5.00%). There is a 0.42% yield drop from current to reset. In terms of the yield, you are getting 5.42% until April 2021, and then for the next 5 years you will be getting 5.00%. Of course this is based on today’s 5Year GOC Rate.

So the best blended yield you can expect at this point from the preferreds is 5.00%, if you pick TD.PF.G based on today’s rates. Notice the current price is $25.46, – $0.46 above face value. In terms of capital gains you have no upside potential and you are fully exposed to downside risk. 

Use “what if scenarios “ to see other projected yields for TD.PF.G . Click the button ”What if Scenarios” to get to this section.

• Sort the table by “current yield”. TD.PF.G is now at the top. 
• Go to the very right of the table  to see the projected yield for  Scenario 6.
• The 5YR Government Of Canada bond Rate is set at 1.6%. You can now see that the best case scenario is for a blended yield of  6.12%.

Click on the button “Common or Preferred”. 

TD Bank common shares are currently yielding 4.4% and have a Compound Annual Growth Rate of 6% based on historical data starting with year 2003 to the latest year 2020. Current quarterly dividend is $0.79. Unfortunately the dividend has been not been consistently increasing over the last 18 years.

Case A: Based on the 18 year Compound Annual Growth Rate of the TD dividend I calculate the future dividend for the next 5 years to be starting at $0.83, and ending at $1.06. Assuming the Stock price remains the same $71.73 over the next 5 years, the corresponding yields will be 4.6%, 4.9%, 5.2%, 5.5%, 5.9%. The average yield over the next 5 years is expected to be 5.2%.

Case B: Based on the last 10 year Compound Annual Growth Rate of 2.6% for the TD dividend I calculate the future dividend for the next 5 years to be starting at $0.81, and ending at $0.89. Assuming the Stock price remains the same $71.73 over the next 5 years, the corresponding yields will be 4.5%, 4.6%, 4.7%, 4.8%, 5%. The average yield over the next 5 years is expected to be 4.7%.

Case C: Based on the last 5 year Compound Annual Growth Rate of 7.4% for the TD dividend I calculate the future dividend for the next 5 years to be starting at $0.84, and ending at $1.12. Assuming the Stock price remains the same $71.73 over the next 5 years, the corresponding yields will be 4.7%, 5%, 5.4%, 5.8%, 6.2%. The average yield over the next 5 years is expected to be 5.4% . Use this yield when comparing the to the preferred yield.

TD Common Stock Short Position over time

This graph shows the short position for TD common share over time. Place the mouse cursor over the graph to reveal data like (date, short position detail).

Currently the outstanding float for TD is roughly 1.8 Billion shares and the latest short position is roughly 59 Million shares. Thus the current short position is 3.2% of the outstanding float.

You can see the short positions of other bank stocks in their respective web pages on our site.