The Canadian stock market has experienced impressive momentum recently, and financial institutions are leading the way. At the forefront of this banking surge is Toronto-Dominion Bank TSX:TDNYSE:TD, which has delivered truly exceptional returns for investors. The stock is currently up an incredible 33% this year alone. Even more impressively, the banking giant's share price has now roughly doubled in five years, showcasing its robust and steady growth trajectory.
However, with such a meteoric rise, many investors may be left wondering whether it might be too late to buy the stock given its steep valuation. Currently, it trades at roughly 20 times its trailing earnings. This is a remarkably large multiple for a bank stock, suggesting that a significant premium has already been priced into its share price. Furthermore, its dividend yield of 2.6% also isn't as high as it's been in the past, meaning income-focused investors are getting less value for their capital today.
While it's undeniably a good long-term buy for stability, that does not mean it is an ideal investment today. The danger is that if the economy falls into a recession, a stock like TD could be vulnerable to a significant decline given its elevated valuation.
TD is a solid long-term investment, just not at the current price. I'd hold off on buying it today as the upside may be limited right now, and the dividend income isn't all that appealing either; there are better, higher-yielding stocks that are available in other sectors that may be much better options right now.