Toronto-Dominion Bank (TSE:TD) Will Pay A Larger Dividend Than Last Year At CA$1.05

The board of The Toronto-Dominion Bank (TSE:TD) has announced that it will be increasing its dividend by 2.9% on the 31st of January to CA$1.05, up from last year's comparable payment of CA$1.02. The payment will take the dividend yield to 5.5%, which is in line with the average for the industry.

See our latest analysis for Toronto-Dominion Bank

Toronto-Dominion Bank's Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Toronto-Dominion Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Toronto-Dominion Bank's payout ratio of 93% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 55.5%. For the same time horizon, analysts estimate that the future payout ratio could be 53% which would be quite comfortable going to take the dividend forward.

Toronto-Dominion Bank Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of CA$1.88 in 2014 to the most recent total annual payment of CA$4.08. This means that it has been growing its distributions at 8.1% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that Toronto-Dominion Bank's earnings per share has fallen at approximately 4.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Toronto-Dominion Bank's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Toronto-Dominion Bank that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.