Canadian investors are searching for quality stocks to hold inside their self-directed RRSP accounts.
Royal Bank reported net income of $3.06 billion for fiscal Q2 2018. That’s correct; the company generated profits of about $1 billion per month!
The impressive part is that despite its massive size, Royal Bank managed to increase its earnings by 9% compared to the same period last year.
Diluted earnings per share rose 11%, and the company’s return on equity was 18.1% — up nearly 1% over fiscal Q2 2017.
Balanced revenue stream
A large part of Royal Bank’s success can be attributed to the fact that it has strong operations across a number of segments in the industry.
The personal and commercial banking group is the largest, contributing nearly half of the company’s net income. Deposits, mortgages, and business loans all rose in the last quarter compared to 2017.
Capital market activities also play a big part of Royal Bank’s earnings profile. The group contributed net income of $665 million in the quarter, roughly in line with the same period last year.
Royal Bank’s wealth management group is very strong. Results in the segment tend to vary from quarter to quarter, as we saw with the 25% net income improvement in Q2, relative to the same period last year.
Investor and treasury services saw net income rise 10% year over year to $212 million, supported by higher revenue from the asset services business and improved margins due to interest rate hikes.
The insurance division rounds out the profile. While the group is now smaller than it was in previous years due to a disposition in 2016, insurance activities still generated net income of $172 million in the second quarter.
Royal Bank has paid a dividend every year since 1870. The company has a long track record of raising the payout, and that trend should continue in step with rising earnings.
The current distribution provides a yield of 3.8%.
Long-term investors have done well with this stock. A $10,000 investment in Royal Bank 20 years ago would be worth more than $85,000 today with the dividends reinvested.
The bottom line
RRSP investors looking for a buy-and-forget pick should be comfortable owning Royal Bank of Canada. There is no guarantee the company will generate the same results over the next two decades, but the bank remains an industry leader, and the strategy of buying solid dividend-growth stocks and investing the dividends in new shares is a proven one.