Will Royal Bank Deliver Another Dividend Hike for Shareholders?

What you need to watch for in Royal’s upcoming earnings release.

| More on:
The Motley Fool

Royal Bank of Canada (TSX:RY, NYSE:RY) is set to release its quarterly report next Wednesday. And while the company is expected to deliver another round of record profits and dividend hikes, some problems are starting to brew beneath the surface. Here’s what investors should be watching for next week.

Stats on Royal Bank

Analyst EPS Estimate $1.43
Change From Year-Ago EPS 3.6%
Revenue Estimate $8.11 billion
Change From Year-Ago Revenue 2.5%
Earnings Beats in Past 4 Quarters 2

Source: Yahoo! Finance

Will Royal Deliver For Shareholders This Quarter?
Royal posted solid numbers in 2013. The company generated $8,429 million in earnings, up 12% year-over-year, thanks to good contributions from retail banking and wealth management. And the firm also grossed more than a third of its total revenue outside the Canada, showing that it’s capitalizing on promising opportunities in countries around the world.

However, analysts have become more pessimistic on Royal’s earning recently. Over the past three months the street has lowered its first quarter EPS estimate by a penny and cut its full-year 2014 projections slightly. The stock has been trading lower in lockstep, falling 5% over the last quarter.

Other transactions could also cloud the company’s financial results next week. In January the firm raised the white flag in the Caribbean country of Jamaica, announcing that the sale of its subsidiaries RBC Jamaica and RBTT Securities to competitor Sagicor Group for $97 million. This transaction will result in RBC taking a loss of $60 million for its failed Jamaican campaign.

The losses are mainly attributed to a write down of RBC Jamaica’s intangible assets and goodwill. And while these are only small one-time accounting items, the sale calls into question the company’s entire expansion strategy in the Caribbean.

Also on investors minds is a recent report from credit rating agency Moody’s Investor Services. In the research note Vice President and Senior Risk Officer David Beattie raised concerns that risky bank trading activities expose the industry to unforeseeable losses and wild swings in profitability.

“The significant reliance of Royal Bank of Canada, Bank of Montreal and National Bank of Canada on earnings from capital markets (CM) business exposes all three of these banks to high earnings volatility and the prospect of large, unpredictable losses that could rapidly deteriorate their creditworthiness,” he said highlighting Royal Bank inparticular as “the most exposed to large and unpredictable losses.”

Of the three banks, RBC which has the largest global reach and is therefore the most exposed to the risks highlight in this report with more than 70% of RBC’s capital markets revenue coming from outside of Canada.

Investors should be worried about this type of thinking from rating agencies as it could threaten Royal’s credit rating resulting in a higher cost of capital. Shareholders will want to listen for management’s response during the conference call.

Finally, investors are also expecting another round of dividend hikes from Canada’s banking giant. Coming out of the financial crisis, Royal has fallen into a habit of raising its payout every other quarter. However the company’s payout ratio nearing 50%, about the upper end of its target range. That may not leave much room for a big hike next week.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul does not own any shares in the companies mentioned.

More on Investing

concept of real estate evaluation
Dividend Stocks

1 Undervalued TSX Stock Down 34% to Buy as Housing Costs Surge

Don't let the share price get you down. This undervalued TSX stock could certainly be due for a comeback.

Read more »

A plant grows from coins.
Dividend Stocks

2 High-Yield Dividend Stocks for TFSA Investors

These stocks look cheap today and pay attractive dividends.

Read more »

3 colorful arrows racing straight up on a black background.
Stocks for Beginners

The Best TSX Stocks to Invest $25,000 in Right Now

With $25,000 to invest, these two top TSX stocks could help you earn strong gains through market ups and downs.

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Dividend Stocks Built to Survive a U.S.-Canada Trade War

If you're looking for dividend stocks that will remain strong no matter the global situation, these look top notch.

Read more »

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

3 Reliable Canadian Dividend Stocks for Dependable Income in 2025

These Canadian dividend stocks have solid operations and pay reliable dividends, making them three of the best investments to buy…

Read more »

oil pump jack under night sky
Energy Stocks

Top Energy Stocks to Invest in 2025

Most investors are avoiding energy stocks over fears that Trump tariffs could bring a structural change in the energy supply…

Read more »

An investor uses a tablet
Stocks for Beginners

My Single Best Canadian Stock Pick for April 2025

Here’s why Aritzia (TSX:ATZ) stock could give you a perfect mix of resilience and runway in today’s volatile Canadian market.

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

Unlock Financial Freedom: How to Maximize Your TFSA for a Stress-Free Retirement

The TFSA isn’t just a savings account – it’s a tax-sheltered investment vehicle with the potential to supercharge your retirement.

Read more »