Royal Bank of Canada (TSX:RY)(NYSE:RY) has an apt name. While it might not have been the intention behind the actual nomenclature, Royal Bank has ruled the TSX as the largest security for a long while. Currently, Shopify has claimed that position, and Royal Bank is in second place, but it’s still one of the most dependable and desirable securities on the TSX.
The financial institution has deep roots in the history of the country. It has been around since 1864 and has seen its fair share of recessions and market crashes. The bank has proven its strength time and time again, and while we can’t give it all the credit (since all of the Big Five are important in this regard), it’s part of the reason why the Canadian banking sector is one of the most secure in the world.
Quarter four results
The fourth-quarter results were recently announced, and they’ve endorsed the notion that Royal Bank of Canada is well on its way to recovery. The market crash and the pandemic shook the financial institution to its core, but it couldn’t keep it down. The net income (for the year ended) is down by 11% from 2019, and the return on equity is down by 16.8%.
The area where the bank showed the most promise was the capital markets. Thanks to corporate and investment banking and lower compensation, the income from capital markets increased by a whopping 44%. While the overall net income for the year fell by double digits, the quarter to quarter difference was actually a 1.4% increase. And given how COVID decimated the market, the 11% net loss compared to 2019 might actually not be that bad.
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A solid investment
The Royal Bank of Canada has been a solid investment for a few years now. Many blue-chip stocks get stagnant, but the bank is not only creating value for its shareholders through its dividends; the stock is also steadily growing. It’s a good pick for its generous yield as well as its capital growth potential. Its 10-year CAGR is 11.47%. If the history of the stock is any indication, it might be able to sustain this growth rate or even grow upon it.
The juicy 4.1% yield is enough to start a dependable passive income if you have enough capital to invest in the bank. Its dividend-growth rate might not be the most generous in the bunch, but it can become quite significant in the long term. This is one of the stocks that you can buy and forget about for decades.
The stock has recently reclaimed its start-of-the-year valuation, and it’s still fairly valued. If you believe that another market crash is imminent, you may want to wait for it. Another market crash can give you a chance to buy this bank at a highly discounted price and locking in a juicier yield. But if another market crash isn’t on the horizon, then buying now, before the stock becomes overvalued, would be a better idea.
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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.