TD raises dividend after earnings beat, but restructuring and U.S. overhang keep upside capped

What happened

TD reported an underlying earnings and revenue beat this quarter, led by higher fee and trading income and stronger domestic‑banking volumes, and announced a 2.9% dividend increase. Management framed the payout bump as confidence in cash generation, but the beat was meaningfully offset by restructuring and remediation charges that still weigh on headline results. This outcome maps to our prior thesis: the core franchise is rebounding as 2024 one‑offs fade and the dividend provides tangible downside support while the stock trades at a discount to Canadian peers. That said, the dividend increase is modest and the beat leaned on fee and trading activity—both more volatile than retail net interest income—so the improvement is fragile. The primary catalysts that still matter are delivery of the ~C$2.5B cost program and visible progress on U.S. regulatory milestones; failure on either could quickly erase the reassurance from this quarter.

Implication

The 2.9% dividend increase reinforces the income case and shows management believes payout capacity is intact, which supports total return while remediation charges roll off. However, the beat was driven by fee and trading income—items that can swing quarter‑to‑quarter—so investors should not extrapolate durable margin expansion from a single period. The structural upside remains tied to execution of the ~C$2.5B run‑rate cost program; missed targets would materially reduce the valuation rerating potential. More importantly, until TD clears key U.S. regulatory milestones (asset‑cap/monitorship relief), the stock is likely to trade at a persistent discount versus Canadian peers. Investors should therefore treat this quarter as constructive but not dispositive: continue to accumulate on meaningful weakness if you own the turnaround and regulatory resolution is part of your thesis.

Thesis delta

Modest positive update: we modestly increase conviction that near‑term earnings are rebounding and that the dividend is sustainable in the short run. We do not change the BUY stance or valuation anchor because the principal risks—U.S. asset cap/monitorship and execution of the C$2.5B cost program—remain unresolved and remain the dominant determinants of any re‑rating.