TD's $7 Billion Buyback: A Tactical Move or a Sign of Overvaluation?

The immediate catalyst is clear: regulatory approval for a new, substantial share buyback program. On January 16, 2026, TD Bank Group announced that both the Toronto Stock Exchange and Canada's financial regulator, OSFI, have approved its new normal course issuer bid to repurchase up to $7 billion of its common shares. This follows the completion of an $8 billion buyback under the previous program, which TD has now terminated.

The mechanics are straightforward. The new program, which commences on January 20, 2026, has a maximum term of about 14 months, set to expire on January 15, 2027, or earlier if the $7 billion cap or the 61 million share limit is reached. The scale is significant: the maximum repurchase of 61 million shares represents approximately 3.64% of the public float. TD will conduct these repurchases through Canadian and U.S. exchanges, with purchases limited to 25% of its average daily trading volume each day under TSX rules.

This move is a tactical deployment of capital. It follows TD's recent $8 billion buyback, which was funded by proceeds from the sale of its equity stake in Charles Schwab. The new program signals the bank's intent to continue returning capital to shareholders, but its size and timing-coming right after a major buyback-frame it as a deliberate, opportunistic use of excess liquidity rather than a long-term capital allocation shift.

Valuation Check: Is the Stock Cheap Enough to Buy Back?

The buyback's value depends entirely on the price paid. TD's recent price action suggests the bank is not chasing a peak. Over the past 120 days, the stock has rallied 26.64%, a strong move that has lifted it to a current price near $93.85. Yet, that rally has stalled recently, with the share price down 0.46% over the last five days and still 3.2% below its 52-week high of $96.44. This creates a tactical window: the buyback is being executed at a premium to its recent lows but not at the absolute top of its recent range.

Valuation metrics support the notion of a reasonable entry. The stock trades at a trailing P/E of 11.05 and a forward P/E of 7.98, which are modest multiples for a major bank with a solid earnings base. That base is reinforced by TD's recent financial results, including a full-year 2025 net income of CA$20.54 billion. This profitability provides the underlying cash flow to fund the buyback without straining the balance sheet.

The bottom line is that the timing appears opportunistic, not desperate. The bank is deploying capital at a price that reflects a significant portion of its recent gains but avoids the peak. This setup makes the buyback a potentially accretive use of capital, as it buys shares at a discount to their recent high-water mark while bolstering earnings per share.

Capital Return Strategy: Buybacks vs. Dividends

TD's capital allocation is now heavily weighted toward buybacks, a shift that has significant implications for shareholder yield and financial flexibility. The bank recently declared a quarterly common dividend of CA$1.08 per share, signaling a continued commitment to dividend growth. Yet, this is happening alongside a massive buyback push. In the same announcement, TD confirmed it has already returned CA$6.10 billion to shareholders via buybacks and preferred dividends this year. The new $7 billion buyback program adds another layer to this aggressive return of capital.

This creates a high-yield setup in the near term. The combination of a growing dividend and a large, ongoing buyback significantly boosts total shareholder yield. However, the scale of the buyback raises questions about the balance between returning cash and maintaining a robust capital buffer. The bank is committing to repurchase shares worth nearly 3.6% of its public float annually, a substantial commitment that consumes a large portion of its excess capital.

The good news is that TD's capital ratios provide a strong cushion. As of October 31, 2025, the bank's Common Equity Tier 1 (CET1) ratio stood at 14.70%. This is a very healthy buffer, well above regulatory minimums. It suggests the bank has the financial flexibility to fund these capital returns without jeopardizing its balance sheet strength or its ability to lend and invest in its core business. The buyback program is a tactical deployment of excess capital, not a strain on core financials.

The bottom line is a strategic pivot. TD is using its strong earnings base to aggressively return capital, with buybacks now taking center stage. This benefits shareholders in the short run through EPS accretion and enhanced yield. The risk is that if earnings growth slows-as forecast-the bank may have less room to maneuver for future buybacks or dividends without further drawing down its capital buffer. For now, the high CET1 ratio makes this strategy sustainable, but it tightens the focus on maintaining that earnings resilience.

Catalysts and Risks: What to Watch

The immediate catalyst is the execution of the buyback program itself. The bank has the green light and the capital, but the market will watch the pace and average price paid. The program allows for repurchases of up to $7 billion over about 14 months, with a daily limit of 25% of average trading volume. The key question is whether TD can execute this at a price that represents a meaningful discount to intrinsic value. As a normal-course issuer bid, the bank is not obligated to buy back the full amount, but the market will interpret a slow or expensive pace as a lack of conviction in the stock's undervaluation.

A primary risk is that the buyback is executed at a price that does not represent a significant discount. The stock's recent rally of 26.64% over 120 days means the bank is buying shares at a premium to its recent lows. If the stock trades sideways or declines from here, the buyback could dilute the benefit to shareholders, as the bank is effectively using cash to retire shares at a higher price. The success of the program hinges on TD's ability to buy aggressively during periods of weakness, which requires both discipline and sufficient liquidity.

The longer-term risk is sustainability. TD is committing to a high level of capital return, with CA$6.10 billion already returned this year via buybacks and dividends. This is a heavy load on earnings. The bank's own narrative acknowledges a forecast for declining earnings over the next few years, with earnings projected to decrease by CA$6.1 billion from today's level. If profitability slows as expected, the bank's ability to fund future buybacks and maintain its dividend growth could be challenged. The current high capital buffer provides a cushion, but it is not infinite.

The bottom line is a watchlist of two key items. First, monitor the buyback's execution: its speed and average price will determine the near-term shareholder benefit. Second, watch future earnings reports for signs that the forecasted decline is materializing. If earnings hold up, the aggressive capital return is a win. If they falter, the bank's financial flexibility may be tested, turning a tactical move into a strategic vulnerability.