* Ex-items EPS C$1.86 vs EST C$1.76
* Profit hit by litigation reserve
* Dividend up 6 pct (Adds details, analyst and CFO comments)
March 1 (Reuters) - Toronto-Dominion Bank's quarterly profit slipped due to weaker capital markets-related income and litigation costs, but the result beat estimates, and the bank raised its quarterly dividend.
TD, Canada's second-largest bank, earned C$1.48 billion ($1.50 billion), or C$1.55 a share, in the quarter ended Jan. 31, down 5.1 percent from C$1.56 billion, or C$1.67 a share, a year earlier.
The bank set aside C$171 million for costs related to a $1.2 billion Ponzi scheme run by Florida lawyer Scott Rothstein. TD was ordered to pay $67 million in January after losing a Miami verdict related to its involvement in the case, and then settled a separate lawsuit in February.
Excluding that charge and other items, the bank earned C$1.86 a share. Analysts on average had expected C$1.76, according to Thomson Reuters I/B/E/S.
Barclays Capital John Aiken said strong cost controls contributed to the bank's profit beat.
Income from the bank's flagship Canadian banking unit rose 11 percent, helped by lending growth, particularly on the business side, while U.S. retail banking income climbed 6 percent to C$165 million.
TD Chief Financial Officer Colleen Johnston said the result reflected the better-than-expected recovery of the U.S. financial sector.
"I wouldn't characterize it as a buoyant recovery, I would characterize it as a slow mend, but I think all of us thought it was going to be tougher," she said.
Wholesale banking income, which includes trading and investment banking, slid 17 percent to C$194 million from the abnormally strong first quarter of 2011.
The bank raised its quarterly dividend by 4 Canadian cents a share to 72 Canadian cents, which Johnston said was in part due to optimism about the bank's profitability going forward.
$1 = 0.9850 Canadian dollars Reporting By Cameron French in Toronto; Editing by Lisa Von Ahn and Janet Guttsman