Should You Buy Royal Bank of Canada (TSX:RY) Stock Today?

Is it a good time to buy Royal Bank of Canada (TSX:RY)(NYSE:RY) stock for dividends?

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After reporting its fiscal Q2 2019 results on Thursday, Royal Bank of Canada (TSX:RY)(NYSE:RY) stock fell 2.4%. Let’s explore to see if you should consider buying the quality name today or not.

RBC’s Q2 results

RBC operates in five core segments. The Personal & Commercial Banking, Wealth Management, and Capital Markets segments, in particular, helped contribute to net income growth this quarter. They saw earnings growth of 6.2%, 8.9%, and 16.7%, respectively, against the same period a year ago.

Overall, RBC increased revenue by 14% to $11.5 billion versus non-interest expense that only rose 8%. Net income came in 5.6% higher to $3.2 billion, while diluted earnings per share rose 6.8% to $2.20 per share thanks to a reduction in its share count.

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RBC’s recent results

RBC’s half-year results can help reduce any bias that may occur from looking at a quarter’s results. For the first half of the fiscal year, RBC saw healthy revenue growth of 10.5%, while diluted earnings per share experienced stable growth of 6.6% to $4.34.

RBC’s financial position remains strong. At the end of Q2, it had total assets of more than $1.3 trillion (up 8.1% year over year), deposits of $864 billion (up 5.1% year over year), loans of more than $602 billion (up 9.2% year over year), and common equity of $76.1 billion (up 10.1% year over year). Additionally, the bank’s common equity tier 1 capital ratio was solid at 11.8% (up 40 basis points year over year).

Should you buy RBC stock?

RBC is a quality stock that tends to outperform the market with lower risk compared to the average stock. It also offers a safe and growing dividend.

At about $102.60 per share at writing, it appears to be fairly valued trading at a blended price-to-earnings ratio of about 11.8 compared to its long-term normalized multiple of 12.2.

The bank is expected to grow earnings per share by about 6%. Combined that growth with its yield of 4% at writing, RBC stock can deliver long-term returns of about 10% per year. These estimated returns therefore indicate that RBC is still a solid buy.

This year, RBC’s payout ratio is estimated to be about 45%. So, it’s reasonable to expect dividend growth that could be slightly higher than its actual earnings growth assuming that the bank were willing to steadily expand its payout ratio towards 50%, which would align with its big Canadian peers.

Foolish takeaway

RBC is a leading Canadian financial institution. The stock trades at a reasonable price and offers a solid yield of 4%. Therefore, it’s an excellent choice for conservative investors looking for safe income and long-term returns of about 10% per year. And it would be an even stronger buy on any further dips.

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 Kay Ng has no position in any of the stocks mentioned.

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