Canadian banks can be some of the best stocks during an economic downturn. Buy them now, and you could gain a great deal and a huge dividend. But what about after a downturn?
Even the largest of the Big Six banks hasn’t been immune to pressure from inflation and rising interest rates. Today, we’re going to look at Royal Bank of Canada (TSX:RY) and see what could happen in the near future as the economy shifts.
What’s been happening with Royal Bank stock?
On the whole, Royal Bank stock was performing quite well, even as other banks fell around it. Shares remained quite stable until recently, when shareholders saw the stock drop back in May. This came after earnings disappointed investors across the board.
In the case of Royal Bank stock, the bank delivered its second-quarter results back in May. This included net income that fell 14% compared to the prior year and diluted earnings per share down 13% to $2.58. The results came with the use of higher provisions for credit losses. However, pre-provision and pre-tax earnings were up 1% to $5 billion compared to the year before, as higher net interest income drove higher rates and strong loan growth.
Royal Bank stock was even able to increase its dividend yield, despite the bad news, with a strong balance sheet allowing the stock to continue its strong position. And even as net income is down year over year, there were improvements of 14% quarter over quarter.
Is an acquisition likely?
An acquisition of Royal Bank stock is not likely. The company has been keeping its eye on the acquisition of HSBC, with the federal Finance Department stating it launched a public consultation of the proposed $13.5 billion deal. The move would be a rare occurrence to see how this could affect the country’s competition among banks.
Royal Bank stock continues to be the dominant player in loans and deposits in particular, and this acquisition could put it far ahead of the rest. With HSBC coming in seventh place among the country’s biggest loans companies, with a focus on commercial and mortgage lending, it could certainly be a huge expansion for the bank.
In the last two decades, any merger of this size has been stopped by the federal government, but it’s unclear whether this will be the case here. It won’t be until 2024 that we’ll likely see a merger go through, if at all.
What now?
If you’re looking for dividends and a deal, Royal Bank stock is certainly a strong option. All the banks are down at this point, and pretty much at the same level in terms of how the future will play out. However, Royal Bank stock does have a foot ahead of the rest should this HSBC deal go through.
With that in mind, trading at 12.72 times earnings with a 4.21% dividend yield, Royal Bank stock looks like a strong option for investors. Shares are down 5% in the last six months, but still up 5% in the last year. That’s more than many other banks can say at this point. So, for protection, defence, and dividends, consider Royal Bank stock on the TSX today.
