Toronto-Dominion Bank (TD.TO)(TD) should hang on to its remaining stake in U.S. brokerage firm Charles Schwab (SCHW) until a meaningful investment opportunity comes up, a Scotia Capital analyst says.

“While TD’s holdings in SCHW are not strategic, it is a good investment that the bank can ultimately use for strategic purposes down the road,” analyst Meny Grauman wrote in a note to investors Wednesday, pointing to forecasts for ongoing earnings growth at Schwab.

There has been speculation in recent weeks that TD might sell its remaining 10.1 per cent stake in Schwab even before it completes a comprehensive strategic review, with the proceeds potentially going to a share buyback. Grauman agrees that such a move would likely increase earnings per share, but argues that rationale alone doesn’t justify a sale.

The primary reason, he says, is that share buybacks in the Canadian banking sector “don’t tend to correlate with superior earnings growth or stock performance.” He points to National Bank of Canada, which over the past five years “has bought back a minimal amount of stock but continues to deliver peer-leading earnings growth and share performance.” Over the same period, Grauman says, TD has been “aggressively buying back shares … but clearly that has not translated into superior returns, let alone superior earnings growth.”

Shares of TD were trading just under $82 on the Toronto Stock Exchange as at 1 p.m. ET Wednesday, down a few tenths of a percentage point. The shares have risen almost 10 per cent over the last month, with a growing number of analysts seeing upside in the stock after a 2024 brimming with bad news.

Last August, TD sold around 40 million shares of Schwab to fund expected financial penalties for its anti-money laundering failures at its U.S. banking operation. That sale reduced its stake from 12.3 per cent to the current 10.1 per cent.

TD announced Wednesday that Schwab’s fourth-quarter earnings will translate to around $231 million of reported equity in net income for TD’s fiscal 2025 first quarter. Jefferies Financial Group analysts estimate that Schwab’s earnings contribution marks a 30 per cent increase from the previous quarter, and 64 per cent year-over-year.

Furthermore, Grauman writes that “over the next two years, the consensus outlook for earnings growth at SCHW is materially higher than the earnings growth outlook for TD’s U.S. segment [excluding] SCHW.”

The Scotiabank note says that TD has few immediate acquisition options necessitating a cash influx, “in Canada because of a lack of targets and in the US because of regulatory constraints.”