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A Top Dividend Stock to Buy and Hold for the Next Decade

Investing in solid income-producing stocks isn’t something that’s in fashion these days. Most of the financial press is focused on companies that produce eye-popping earning results every quarter and satisfy growth-hungry investors.

But away from that market noise and excitement, there are a few top dividend stocks that help millions of investors who can’t take too much risk with their hard-earned money. All they want is steadily growing income while keeping their investment intact.

If you’re one of those investors, then I would like to explain why Royal Bank (TSX:RY)(NYSE:RY), the nation’s top lender, is in a good position to become a part of your income-producing portfolio. Here are the top two reasons that make this lender my favourite dividend pick.

Dominant market position

The companies that survive in the long run are those that have a dominant market position: a durable competitive advantage and sticky services that we have no option but to use. It will be wrong to say that investments in stocks are risk-free, but you can always minimize your risks by investing in stocks that meet the criteria I mentioned above.

Royal Bank is one such stock that fit the bill. It is the nation’s largest bank with more than $1.2 trillion in total assets. It also has a strong presence in the U.S. after its acquisition of City National Bank in 2015.

That dominating position in North America makes it possible for the lender to perform better in both favourable and tough operating environments. Royal Bank showed investors how it is benefiting from a strong North American economy when it posted its record earnings from Canadian banking division.

Royal Bank saw improvements in four of its five main business divisions, led by a 20% profit jump from insurance. Earnings from RBC Capital Markets rose 14%, while wealth management climbed 13%.

Growing dividend income

For long-term income investors, the most important factor to consider when picking a dividend stock is the company’s ability to reward its investors. Royal Bank is one of the top dividend payers that has been growing payouts regularly.

The lender has paid distributions to shareholders every year since 1870 with a strong track record of dividend growth.

Going forward, analysts see 7-10% growth in dividends, which is line with the lender’s earnings growth over the medium term. The current payout of $3.92 per year provides a forward yield of 3.92%.

That yield may not look quite attractive to many investors, but if you continue re-investing income back to buy more shares, you could unlock the power of compounding. Just to give you an example, a $10,000 investment in Royal Bank 20 years ago would be worth more than $130,000 today with the dividends reinvested.

Bottom line

Trading at around $100 a share at the time of writing, Royal Bank stock has had solid momentum going into 2019. At a time when risks to global growth are increasing, and many investors are looking for defensive stocks, Royal Bank is a good name to keep in your buy-and-hold portfolio.

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Fool contributor Haris Anwar has no position in the companies mentioned.

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