Whenever I talk to other investors, a common theme tends to emerge, especially when I ask about their winners and losers.
Losers all tend to sound something like this.
“Yeah, I know I shouldn’t trust a stock with a 10% yield, but…”
“Yeah, I know it’s dangerous to buy a sexy tech name at an all-time high, but…”
“Yeah, I know it’s getting its butt kicked by the competition, but…”
Sure, buying those types of stocks can work out. I’ve done it before, and overall I’m happy with my results when I go looking at deep-value names. But beaten-up stocks come with a lot of risk, which isn’t appropriate for a lot of investors, especially those close to retirement.
Winners, meanwhile, also follow a theme.
I have yet to meet an investor who isn’t satisfied with the purchase of some of Canada’s largest and most secure companies. Sure, some of them might lag the overall stock market, but dividends have a way of relieving the pain.
We’ve all heard the fable about the tortoise and the hare. Blue-chip investing might be boring, but it tends to win the race.
A perfect example of this kind of stock is Royal Bank of Canada (TSX: RY)(NYSE: RY), Canada’s largest financial institution, and fifth largest in North America. It has operations in every facet of financial services, including retail banking, mortgages, wealth management, capital markets, and even insurance. Its operations span more than 1,200 branches in Canada, as well as nearly 100 more in the United States and the Caribbean.
While geographical diversification is nice, the crown of Royal Bank’s business is definitely its Canadian retail operations, which account for nearly half of its earnings. Staff do a terrific job cross promoting investment or insurance products, with cross-promotional success at more than 50% higher than the industry average. RBC is also #1 or #2 in every retail banking category in the country. That means a lot of satisfied customers.
Even though it’s already Canada’s leading bank, RBC continues to grow at a nice clip. Deposits and loans outstanding have grown at a compounded rate of 8% per year since 2010, which is translating to net income expanding by 10% annually. Strong stock markets have also buoyed its capital markets division.
Wealth management continues to be a good business as well. Assets under administration have grown at an 11% annual clip over the past four years, as baby boomers close to retirement continue to entrust RBC with their retirement savings. RBC trails only ETF giant Blackrock in growth of assets under management since 2007. Additionally, on a per capita basis, RBC’s advisors manage almost twice as much as the average advisor working for a competitor.
Not only does RBC have terrific retail, commercial, capital markets, and wealth management divisions, but it also has an ace up its sleeve — an almost unparalleled dividend history.
RBC was founded in Halifax in 1864 by a small group of merchants. After obtaining a federal charter in spring of 1869, the company paid its first dividend to shareholders in 1870. And hasn’t missed one since.
Think about everything that’s happened since 1870. Pretty much the only thing that’s stayed constant this whole time is RBC’s dividend history. You can get much more dependable than that.
Besides a slight pause during 2009, the company’s dividend growth record has been rock solid as well. Since 2005, the company has grown dividends at a more than 10% annualized pace, much to the delight of long-term shareholders. Do you want to miss out on that kind of growth?
Canada’s banks are great investments, but Royal Bank might be the best of the group. I think you need to own it. It’s that simple.
