The onset of COVID-19 devastated equity markets around the world. Canada’s stock market was enjoying all-time highs coming into the new decade, but the pandemic did not spare even the highest-quality companies trading on the TSX. However, the broad market decline bottomed in March 2020.
Since the market bottom, several stocks recovered rapidly in a surprising development. While many companies are still struggling to climb up to pre-pandemic prices, several high-quality companies are doing much better than others. The positive market movement is instilling hope that reputable companies can get back to better valuations.
It could be the perfect time to consider investing in a dividend star for a bargain. Remember that high dividend yields are not the only concern here. You need to look at companies with a strong balance sheet and the resilience to ride the wave of economic uncertainty until the pandemic subsides. Otherwise, you can fall into a dividend trap and end up on the wrong side because you were chasing dividends.
A royal financial institution
One such stock that you should take a closer look at is the Royal Bank of Canada (TSX:RY)(NYSE:RY). The $138.99 billion market capitalization financial institution is Canada’s largest bank in terms of the market cap. It offers a wide range of financial services and products to its clients.
Like most other companies, RBC was also stuck hard by the pandemic. As the loan-loss provisions surged, the bank’s income from loan interest fell, taking a toll on the company’s bottom line.
Despite the losses, RBC has significant liquidity to provide value for its shareholders. The bank’s strategic diversification helps it maintain a significant cushion in its balance sheet that can help it weather the current storm. It is a resilient stock with various means to generate income to keep it afloat.
RBC has seen multiple economic crises over centuries, and none of them have proven to be catastrophic for the bank. Despite two world wars, economic recession, and another pandemic, RBC has continued to pay its investors their dividends without fail since 1870.
Royal Bank of Canada’s recovery since the March bottom is a clear sign that it’s a bankable investment to have in your portfolio. At writing, the stock is trading for $97.65 per share, and it is up 35.16% from its March low. It is currently paying its shareholders at a juicy 4.42% dividend yield. Investors can lock in an excellent yield at its current price.
Despite its impressive recovery, RBC is still trading for a discount of almost 11% from its February 2020 high. Investing in the stock right now can allow you to leverage both from its guaranteed dividend payout and capital gains as the stock recovers to pre-pandemic prices. I think it can be a reliable long-term investment even after recovery due to its steady dividends.
Speaking of high quality stocks…
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
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 Adam Othman has no position in any of the stocks mentioned.