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Royal Bank of Canada: A Stock to Buy Today and Forget About for Decades?

Canadian buy-and-hold investors are always searching for top names to add to their portfolios.

Let’s take a look at Royal Bank of Canada (TSX:RY)(NYSE:RY) to see if it deserves to be a top pick today.

Earnings

Royal Bank just reported fiscal 2016 net income of $10.5 billion. Yes, you read it right, that’s TEN BILLION!

This a staggering sum for many people to comprehend, but it shows the strength of the company’s operations amid a challenging economic environment.

Much of the success can be attributed to Royal Bank’s balanced revenue stream. The company gets the largest part of its earnings from the Canadian personal and commercial banking segment, but Royal Bank also has strong wealth management, capital markets, and insurance businesses that contribute to the mix.

When one group has a tough quarter, the others often pick up the slack. For example, capital markets net income, which tends to be more volatile than the other segments, fell 13% year over year in fiscal Q4, but the wealth management segment saw net income jump 20% on a comparable basis.

Growth

Going forward, investors should see the U.S. play a larger role in the company’s earnings reports.

Royal Bank sees strong opportunities south of the border and spent US$5 billion last year to acquire City National, a California-based private and commercial bank targeting high-net-worth clients.

The purchase gives Royal Bank a strong platform to expand its operation in the segment, and investors could see more deals in the coming years.

City National is already making strong contributions to the wealth management group’s results, adding $89 million in Q4 net income.

Dividends

Royal Bank has a strong history of dividend growth, and the payout should be very safe, even if the bank hits a rough patch.

The current quarterly distribution of $0.83 per share yields 3.7%.

Risks

Some investors are concerned the Canadian banks could take a hit if house prices collapse. A huge decline over a short period of time would certainly be negative for the company, but things would have to get pretty bad.

Why?

Royal Bank finished Q4 with $283 billion in Canadian residential mortgages on the books. The loan-to-value ratio on the portfolio is 54%, and 47% of the mortgages are insured.

This means house prices would have to fall off a cliff for before the bank takes a material hit.

Should you own this stock?

Royal Bank is a solid buy-and-hold stock for any portfolio, and investors who already own the shares should simply sit back and enjoy the ride.

New buyers, however, might want to wait for a pullback before taking the plunge. The stock has enjoyed a big rally this year, and the latest surge could be followed by some near-term profit taking.

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 Andrew Walker has no position in any stocks mentioned.

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