Royal Bank of Canada (TSX:RY)(NYSE:RY), the second-largest bank in Canada in terms of total assets, has posted a disappointing performance in 2015, falling over 7%, but I just added it to my watch list for three primary reasons. Let’s take a closer look at these reasons to determine if it belongs on your watch list too, or if you should take it one step further and initiate a position today.
1. Its record financial results in fiscal 2015 could support a higher stock price
On December 2, RBC released record earnings results for fiscal year ended on October 31, 2015. Here’s a summary of 10 of the most notable statistics from fiscal 2015 compared with fiscal 2014:
- Adjusted net income increased 8.6% to $9.92 billion
- Adjusted earnings per diluted share increased 9.4% to $6.66
- Total revenue increased 3.6% to $35.32 billion
- Net interest income increased 4.6% to $14.77 billion
- Non-interest income increased 2.8% to $20.55 billion
- Total assets increased 14.2% to $1.07 trillion
- Total deposits increased 13.5% to $697.23 billion
- Total loans, net of allowance for loan losses, increased 8.5% to $472.22 billion
- Total assets under management increased 9.1% to $498.4 billion
- Book value per share increased 17.3% to $39.51
2. It is a value play based on both current and forward valuations
At today’s levels, RBC’s stock trades at just 11.2 times fiscal 2015’s adjusted earnings per share of $6.66, only 10.8 times fiscal 2016’s estimated earnings per share of $6.88, and a mere 10.2 times fiscal 2017’s estimated earnings per share of $7.32, all of which are inexpensive compared with its five-year average price-to-earnings multiple of 12.8 and the industry average multiple of 12.9.
With the multiples above and its estimated 7% long-term earnings growth rate in mind, I think RBC’s stock could consistently trade at a fair multiple of at least 12.5, which would place its shares around $86 by the conclusion of fiscal 2016 and upwards of $91 by the conclusion of fiscal 2017, representing upside of more than 15% and 22%, respectively, from current levels.
3. It is home to one of the market’s best dividends
RBC pays a quarterly dividend of $0.79 per share, or $3.16 per share annually, which gives its stock a 4.25% yield at today’s levels. It is also very important to make two notes. First, RBC has increased its annual dividend payment for five consecutive years, and it is currently on pace for 2016 to mark the sixth consecutive year with an increase. Second, the company has a target dividend-payout-ratio range of 40-50% of net income, so its consistent growth should allow this streak to continue for the next several years.
Does RBC belong on your watch list or in your portfolio?
Royal Bank of Canada represents one of the best long-term investment opportunities in the market, so all Foolish investors should add it to their watch lists today and consider initiating positions in the very near future.