Why Royal Bank of Canada Rose 1% on Wednesday

Royal Bank of Canada (TSX:RY)(NYSE:RY) is up about 1% following its Q4 earnings release. What should you do with the stock now? Let’s find out.

| More on:

Royal Bank of Canada (TSX:RY)(NYSE:RY), Canada’s largest bank, announced its fourth-quarter earnings results Wednesday morning, and its stock responded by rising about 1% as of 2:00 P.M. EST. Let’s break down the earnings results and the fundamentals of its stock to determine if it could continue higher from here, and if we should be long-term buyers today.

The results that sent the stock higher

Here’s a quick breakdown of 12 of the most notable financial statistics from RBC’s three-month period ended October 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Non-interest income $6,162 million $5,177 million 19.0%
Net interest income $4,361 million $4,187 million 4.2%
Total revenue $10,523 million $9,364 million 12.4%
Net income $2,837 million $2,543 million 11.6%
Diluted earnings per share (EPS) $1.88 $1.65 13.9%
Total assets $1,212,853 million $1,180,258 million 2.8%
Total deposits $789,635 million $757,589 million 4.2%
Total loans, net of allowance for loan losses $542,617 million $521,604 million 4.0%
Common equity $67,416 million $64,304 million 4.8%
Total assets under management $639,900 million $586,300 million 9.1%
Total assets under administration $5,473,300 million $5,058,900 million 8.2%
Book value per share $46.41 $43.32 7.1%

What should you do now?

It was a great quarter overall for RBC, and it capped off a very strong year for the company, in which its total revenue increased 4.8% to $40.67 billion, and its EPS increased 11.5% to $7.56 compared with fiscal 2016. That being said, I think the pop in its stock is warranted, and I think it still represents a very attractive long-term investment opportunity for two fundamental reasons.

First, it’s attractively valued. RBC’s stock still trades at just 13.4 times fiscal 2017’s EPS of $7.56 and only 12.7 times fiscal 2018’s estimated EPS of $7.96, both of which are inexpensive given its current earnings-growth rate and its estimated 7.5% long-term earnings-growth rate; these multiples are also inexpensive given the low-risk nature of its business model.

Second, it’s a dividend aristocrat. RBC pays a quarterly dividend of $0.91 per share, representing $3.64 per share annually, which gives it a lavish 3.6% yield. Foolish investors must also note that 2017 marks the seventh consecutive year in which it has raised its annual dividend payment, and its 4.6% hike in August has it on track for fiscal 2018 to mark the eighth consecutive year with an increase.

RBC’s stock is up over 10% since it reported its third-quarter earnings results on August 23, and I think it is still a strong buy today, so take a closer look and consider making it a long-term core holding.

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 Joseph Solitro has no position in any stocks mentioned.

More on Investing