It’s tough being an individual investor.
We’re constantly hearing about stuff that just isn’t fair. Like billionaires who have enough clout that they can buy into a company and essentially make management their pawns. A company will resist making a shareholder-friendly move for years, and then do it almost immediately after a vocal billionaire shows up.
Plus, folks who are in on the action get other advantages, too, like great research, the best tips, and access to management that small investors can only dream of. It’s easy to get frustrated when stacked up against those odds.
But what if it didn’t have to be that hard? What if investors could find success just by sticking some money away every month and buying shares of high-quality titans of Canadian business? Wouldn’t that be attractive?
Of course, it would be. Fortunately for investors, it really is that easy.
Let’s assume that an investor started putting away just $200 per month, starting 30 years ago. This investor took the money and invested it in Royal Bank of Canada (TSX: RY)(NYSE: RY), because the company was Canada’s largest and most respected bank. Each month, like clockwork, they plunked down an additional $200 to buy a few more shares. Whenever dividends were received, they were reinvested, buying even more shares.
As of the closing price yesterday, this strategy would have netted an investor a cool $1.68 million.
Yes, that’s all it would have taken to become a millionaire. Heck, all the company would have to do is maintain that return for another couple years and you’d be a millionaire twice over. Most middle-class Canadians could retire pretty comfortably on a portfolio that size.
That’s not bad for the amount of cash most of us spend getting coffee.
Over the past 30 years, Royal Bank of Canada has been a terrific investment. Including reinvested dividends, it’s grown nearly 17% — 16.63% annually, to be precise. Can we expect it to perform just as well over the next 30 years?
Perhaps, or perhaps not. On the one hand, the company is still Canada’s largest financial institution. It’s a behemoth in both retail banking and the capital markets. It also has large insurance and wealth management divisions, along with a sizable presence in both the southeast U.S. and the Caribbean. Put all those divisions in one company, and it’s pretty easy to see why it would succeed.
On the other hand, Royal Bank is one of the 10 largest financial companies in the world, with assets eclipsing $1 trillion. Naysayers could point to the law of large numbers, saying that the company is simply too big to continue growing at more than 10% a year. Perhaps that’s true, but it’s not like there are geographical restrictions to banking. When you break it down, banking is essentially the same business no matter where you go. And globalization will continue to open up new markets for the company.
Going forward, I can’t guarantee that a couple of Sir Robert Bordens each month and the patience to wait 30 years will make you a millionaire. But there’s no reason to think that a similar strategy wouldn’t succeed with any number of Canada’s dominant business leaders. Royal Bank has consistently been the best financial in the country. It’s gone through a tough time in Toronto’s real estate market in the early 1990s, the dot-com bubble, the collapse of that bubble, and the worst of all, the Great Recession. Even through all that, it still gave investors generous returns. I’m not sure I’d bet against that.
