It’s been a wild ride for Canada’s big banks, with the failure of Silicon Valley-based SVB Financial casting a large shadow over the broader financial sector. Despite the jolt of jitters on the big banks right now, I continue to stand by the Big Six. Royal Bank of Canada (TSX:RY) is dividend royalty and should be considered anytime it falls by a considerable amount or drags its feet over a span of many quarters.
Royal Bank is a top dog for a very good reason. It’s well capitalized, isolated from the banking woes concentrated on some of the U.S. regional players and sports a wonderful management team who knows how to dodge and weave through hard times. Indeed, Royal Bank is one of those sleep-easy banks, even when the tides get tougher.
Royal Bank: Banking royalty when times get choppy!
You will not get the biggest yield or the lowest price-to-earnings multiple from the name. But what you will get is relative resilience through recessions and other ugly scenarios. Simply put, Royal Bank is always prepared for a rainy day. And even when it gets knocked into the gutter, it doesn’t tend to take too long before shares are back in rally mode.
The company’s stellar risk-management practices are a major reason why Royal Bank is one of the best plays to own when investors are looking to build wealth in environments where prospective returns could be a tad lower than historical averages.
Royal is not just well capitalized, ready to deal with provisions or other unforeseen hiccups, as they come along. The firm has also been steadily investing in digital technology.
Royal Bank’s growth path looks sound
Mobile banking is a big deal, as fintech firms continue to target the lunch of the largest financial institutions on the planet. Over the years, Royal Bank has defended its turf with its impressive mobile app and other digital services. There was a reason why Royal Bank was ranked number one for mobile app customer satisfaction among the Canadian banks. It’s a very well-designed platform that just works.
It’s not just tech that could help Royal Bank keep its throne as Canada’s largest firm (can any firm match the $186 billion market cap?). The firm made an intriguing deal in the domestic market, as it acquired HSBC Canada in a deal worth $13.5 billion cash.
That’s the largest Canadian banking deal on record. I think HSBC Canada is in very good hands with Royal’s managers. Currently, around $740 million in cost savings are expected for 2024. Looking further out, I think the new bank could help spark impressive earnings growth over time.
Of course, many big banks have been wheeling and dealing of late. Most notably, some big Canadian banks have been adding to their exposure in the U.S. regionals. With the plunge in U.S. regionals, it certainly seems like Royal Bank looks wiser than its peers by sticking with the domestic plays.
The bottom line on Royal Bank of Canada stock
HSBC is a deal that could pay huge dividends over the long run, as Royal continues improving its domestic banking arsenal. Today, RY stock goes for 12.7 times trailing price to earnings, with a 3.99% dividend yield. It’s not as cheap as some of its rivals, but I think the premier banking giant is worth a premium price tag.
