Time to Snap Up Royal Bank (TSX:RY) Stock for Quarterly Passive Income?

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock has a high dividend that can generate significant quarterly passive income

| More on:
office buildings

Image source: Getty Images

Royal Bank of Canada (TSX:RY)(NYSE:RY) is one of the most popular bank stocks on the TSX. As the largest Canadian bank by revenue and market cap, it has a proven track record of delivering solid returns to shareholders. Over the past five years, Royal Bank has returned about 46% plus dividends, making it a market-beating stock despite its relatively safe and “boring” operations.

More recently, Royal Bank has emerged as a standout among TSX banks. In its most recent quarter, it grew earnings by 7% year-over-year, which, although not a huge gain, was above average for the TSX in the same period. This relatively strong growth during what was otherwise a rough time for Canadian banks means that Royal Bank’s dividend may be among the most reliable among its peers. But will that remain the case? To answer that question, we need to look at Royal Bank’s most recent quarterly report.

Latest earnings

In its most recent quarterly report, Royal Bank reported revenue of $11.5 billion, up from $10.8 billion a year prior. In addition to growing its revenue, the bank also increased net income by 5% and diluted EPS by 7%. These are solid numbers from a Canadian bank in the final quarter of 2018. Others saw earnings either flatline or drop in the same period, a difficult time for Canadian markets. Royal Bank’s growth in that quarter seems to have been driven mainly by a large 31% jump in its insurance business; other business units were mostly flat or up 2-5%.

Dividend: yield and growth

At current prices, Royal Bank stock yields about 3.8%. That’s above average for the TSX on the whole (TSX index funds average about 2.7%), but somewhat on the low end for a bank stock, as it’s possible to find banks that yield as high as 4.7%. However, when looking at dividends, the yield is not the only thing you need to consider. You also need to consider the prospect for dividend growth. Stocks that have growing dividends could end up yielding more tomorrow than they do today. And as Royal Bank has growing earnings and an average dividend growth rate of 7.9% a year, it’s safe to say that that will be the case for its stock.

Is the dividend safe?

It’s one thing to say that Royal Bank has a high and growing dividend, but quite another to say that its dividend is reliable. Companies cut dividends all the time, and the chance that this will happen to one of your investments is something you need to consider.

Fortunately, it looks like Royal Bank’s dividend is fairly safe. With the payout ratio on the low end at 47% and the stock still growing earnings each quarter, it appears likely that Royal Bank will keep paying its dividend without reducing it for the foreseeable future. This makes Royal Bank stock a great option if you’re looking for quarterly passive income in your TFSA or RRSP.

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 Button has no position in any of the stocks mentioned.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »