3 Reasons to Buy Royal Bank of Canada

Investors may be worried, but Royal Bank of Canada (TSX:RY)(NYSE:RY) still deserves to be a core holding in most portfolios.

| More on:
The Motley Fool

The past few years have been very kind to Canada’s big banks, especially Royal Bank of Canada (TSX: RY)(NYSE:RY), Canada’s largest company. The bank continues to set earnings records — just last quarter, RBC set records in Canadian banking, wealth management, capital markets, and insurance.

But many investors are worried that the good times may not last. After all, much of RBC’s income growth came in capital markets (known for its volatility and lack of transparency) and Canada’s real estate market appears to be overheated.

That being said, RBC should remain a core holding in most portfolios. Below are three reasons why.

1. A strong domestic franchise

First of all, Canadian banking is a wonderful business to be in. Competition is limited, barriers to entry are high, and, as a result, profitability is pretty easy to come by. Better yet, consumers are typically more loyal to their bank than in years past, making life even easier for the biggest banks.

And RBC is one of the market leaders in Canada, holding a top two position in every Canadian banking product. This leadership position helps the bank control fixed costs better than competitors. So shareholders can always count on this division making plenty of money.

2. Growth in other businesses

The Canadian banks all have a common problem: Growth is hard to come by in Canada. And each of the banks have their own way of dealing with that. RBC’s strategy is to grow through capital markets and wealth management, where it ranks among the top 10 worldwide.

These are businesses where other banks around the world have been in retreat. And RBC has been glad to step in. In wealth management, this comes in the form of cheap acquisitions. In capital markets, this simply means stealing market share.

Looking ahead, RBC remains committed to these businesses, and shareholders should count on continued growth for years to come.

3. Not too expensive

So RBC has a solid Canadian Banking franchise, as well as growing businesses around the world. You would think this bank would be very expensive.

But that’s not the case at all, with RBC trading for just 13.2 earnings, which is actually cheaper than Toronto-Dominion Bank. As a result, RBC has a respectable dividend yield of nearly 4%. And this s a dividend that has consistently grown over the years. For example, the payout has nearly tripled over the past decade.

So RBC certainly deserves to be a core holding in most portfolios. But this discussion leaves out the other banks. You can read more about them in the free report below.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Bank Stocks

hand using ATM
Dividend Stocks

Should You Buy Royal Bank Stock at Current Levels?

RY stock has dropped 20% since January, underperforming broader markets. Is Canada's biggest bank still a buy?

Read more »

edit Businessman using calculator next to laptop
Bank Stocks

Bank of Montreal Stock: Should You Buy Now or Wait?

The economy isn't looking good. However, Bank of Montreal stock is a good buy. You can buy some here to…

Read more »

stock analysis
Bank Stocks

Bank of Nova Scotia Stock: Should You Buy Now?

Bank of Nova Scotia stock just dropped on big news. Is BNS stock now oversold?

Read more »

Meeting handshake
Bank Stocks

TD Bank (TSX:TD): Massive U.S. Deal Could Close Soon

The Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is about to close a $13.4 billion U.S. deal, sources say.

Read more »

retirees and finances
Bank Stocks

Why You Can’t Rely on the Common Sources of Retirement Income  

Future Canadian retirees can’t rely solely on the common sources of retirement income. However, there are ways to convert savings…

Read more »

edit Sale sign, value, discount
Bank Stocks

Buy Bargain Stocks and Make Tonnes of Money in This Market Downturn

Now is a good time to review your buy list to shop for bargain but quality TSX stocks over the…

Read more »

Bank Stocks

TFSA Investors: The Easiest Way to Turn $5,000 Into $50K

Stop making life so complicated. Buy this dividend stock and see your $5,000 turn into $50,000 in your TFSA.

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

3 Top TSX Stocks to Generate a Stable Passive Income

In an uncertain market environment, here are three low volatility dividend stocks that will help you generate a stable passive…

Read more »