TD Offers a Safe ~5% Dividend Yield and Uninterrupted Payouts Since 1857

Toronto-Dominion Bank's (TD) earliest predecessor was founded in 1855 by a group of millers and merchants to provide essential financial services to Canada's emerging grain industry. Today, TD is one of North America's largest banks.

Unlike many big banks, TD has little exposure to investment banking and trading operations, which tend to be more cyclical and riskier businesses.

Instead, the retail bank's revenue is balanced between simple lending activities (mortgages, auto loans, commercial financing, etc.) and fee-based businesses such as insurance, card services, asset management, and brokerage services.

Banking is largely a commodity product, with consumers and businesses seeking access to dependable financing at the lowest interest rate possible. Banks with the largest low-cost deposit bases (i.e. cheap sources of funding to use for lending), most efficient operations, and conservative risk management practices tend to be best off.

TD checks all these boxes but also benefits from generating about 60% of its net income in Canada, where the banking sector is especially favorable. Canada's banks are known for their stability, even sailing through the 2007-09 global financial crisis with relative ease (no Canadian banks failed or required government bailouts).

In fact, Canada hasn't had a banking crisis since 1840, mainly due to strict regulations that cement the largest banks as an effective oligopoly. According to the Department of Finance Canada, the country's six largest banks command more than 90% of market share, resulting in pricing power and a more rational competitive environment.

This concentration of power is partly driven by Canadian regulators who have set strict underwriting and credit standards while also forcing banks to eat more of their own cooking.

For example, Canadian banks are required by law to hold more loans (including mortgages) on their own books rather than securitize (i.e. sell) them to third parties. As a result, lending practices tend to be more conservative.

When combined with their impressive scale, breadth of services, and low-cost sources of funding (i.e. massive deposit bases paying little interest), Canada's largest banks enjoy durable advantages over their smaller rivals.

TD is one of the most conservative choices in the industry given its focus on stable retail businesses (ranked No. 1 or No. 2 in market share for most retail products in Canada), geographic diversification (TD has an extensive presence in the U.S.), and largest base of low-cost deposits.

The bank also maintains capital levels well above the minimum levels required by regulators to ensure it can weather any economic storm and remain solvent (i.e. not need a bailout). This financial discipline earns TD an impressive AA- credit rating, one of the highest ratings among major banks.

TD's culture of conservatism has helped the bank create one of the most impressive dividend track records of any company, with a history of uninterrupted payouts dating back to 1857.

While banking is a complex and cyclical industry for dividend investors to navigate, TD is a standout business that appears built to last.