Royal Bank of Canada (TSX:RY) is the largest of the Canadian banks. In terms of assets, in terms of market capitalization, it checks it all of the bigger-is-better list. But is bigger necessarily better?
There have been a few points that analysts haven’t been so keen on in terms of Royal Bank stock. What’s more, while it might provide protection now, it may not offer more growth in the near future. Instead, I’d consider this other Canadian bank stock.
What’s been happening with Royal Bank stock?
Royal Bank stock has recently been coming under pressure after Canadian regulators stated the biggest Canadian banks need a common equity tier-one capital ratio of at least 11.5% by November. This means building a larger rainy-day fund that can provide provisions for loan losses should we go into a recession.
Right now, Royal Bank stock is expected to see its ratio fall from 13.7% to 12% after completing a deal to purchase HSBC Holdings, which is expected to come into effect in early 2024. Investors weren’t happy about the massive spend, with the company now falling to the lowest ratio of the Big Six banks.
To make the move, Royal Bank stock is going to need to raise capital, and it’s right now unclear how it could do that. That leads to a shaky near-term future. Now, I’m not suggesting you sell Royal Bank stock. However, I do believe there is a stronger option at this point.
Consider BMO stock instead
Bank of Montreal (TSX:BMO) stock could be a better bet at this point. BMO stock has a better ratio than Royal Bank stock for starters. However, it also recently gained a lot more exposure to the United States as well.
This, of course, hasn’t been all that great for investors over the last year. Should America enter a recession, and even as it continues through this downturn, BMO stock will continue to suffer. That being said, you can bet on American business as they tend to recover quickly after an economic downturn.
Given that, BMO stock and its investment into Bank of the West a few years back provides Canadians with more revenue right now for provisions, and more growth in the future when the economy recovers.
Plus, BMO stock has the bonus of a 4.95% dividend yield as of writing. That dividend has surged in the last few years, with a 25% increase after the pandemic. It’s also larger than Royal Bank stock’s yield at 4.33% in terms of yield and actual dividend price.
Bottom line
Both Royal Bank stock and BMO stock are excellent options for those wanting dividend income that lasts a lifetime. However, right now if you’re worried that you may need your cash sooner as opposed to later, BMO stock may be a better option.
Royal Bank stock may need to make some hard decisions to keep up with its capital and afford its next acquisition. Meanwhile, BMO stock has already done its acquisitions and is looking forward to more revenue in the near and distant future.
