With the recent volatility in the market, top TSX stocks are offering long-term value to investors. In particular, dividend-paying blue-chip stocks are becoming more and more attractive to investors in it for the long haul.
Over time, these stocks present great value. With the power of compounding, the large yields on offer create massive total return potential.
However, it’s important to keep in mind that not all blue-chip stocks are created equal. Some are under serious pressure beyond just the market-wide turbulence.
Ideally, an investor would want to find a blue-chip stock with decent upside in share price, an outsized yield, and limited material downside risk.
Today, we’ll look at one top TSX stock that might just fit that bill.
Top TSX stock: RBC
Royal Bank of Canada (TSX:RY)(NYSE:RY) is one of the big banks in Canada and the country’s largest bank by market cap.
Over the years, RBC has stood the test of time. This stock has seen many breakdowns in the market and financial sector, and has always emerged relatively unscathed.
Also, this top TSX stock has an ironclad track record when it comes to paying and boosting its dividend. Even in the 2008 financial crisis, RBC was able to maintain its strong dividend.
Despite its strong past performance, this is a bank that’s also aiming for the future. RBC has rolled out various green initiatives and projects recently while tackling the issues that matter most to Canadians.
As of writing, RBC is trading at $85.40 and yielding 5.06%. That yield is above the five-year trailing yield by a decent amount, and RBC’s P/E ratio is currently much lower than its trailing figures.
This seems to suggest this top TSX stock is offering solid value to investors in that you can pay less for earnings while getting a larger yield than usual.
Return versus risk?
For a Tax-Free Savings Account (TFSA) investor with $6,000 to invest, RBC offers great return potential over a sample 20-year period. Assuming modest growth rates in the stock price and yield, coupled with dividend re-investing, a $6,000 investment can turn into nearly $30,000 in just 20 years.
However, RBC does have some short-term risks that should be pointed out. In particular, interest rates are very low, and mortgage deferrals can put a kink in cash flow.
Of course, this type of interest rate environment means shrinking margins for this top TSX stock. However, its balance sheet is so strong that these incremental squeezes might not substantially alter the bottom line.
Plus, if you’re thinking for the long run, today’s interest rate shouldn’t be of much concern.
Now, mortgage deferrals could certainly tie up a lot of money for the bank. However, the government is backing the banks with liquidity support, and RBC has other reserves to draw on as well.
I wouldn’t bet against RBC’s ability to stay afloat, even with these challenges.
Top TSX stock strategy
With stocks bouncing around, there’s value to be had for long-term investors. RBC is a top TSX stock that seems to be offering value in terms of its share price and dividend at the moment.
For TFSA investors with $6,000 to invest, RBC is a blue-chip stock worth strong consideration.
