The Canadian stock market roller coaster is continuing in 2023 amid macroeconomic concerns and high volatility in commodity prices. Despite these challenges, the TSX Composite benchmark has risen 5.3% on a year-to-date basis with the help of early signs of easing inflationary pressures and reducing possibilities of more aggressive interest rate hikes. Although these factors could keep stocks volatile in the near term, every bear market eventually turns into a bull market. That’s why it could be the right time for long-term investors to buy some fundamentally strong stocks at a bargain right now.
In this article, I’ll talk about one such attractive Canadian dividend stock, Royal Bank of Canada (TSX:RY), and give you three key reasons why I find it worth buying right now.
Royal Bank’s well-diversified business model
In case you don’t know it already, Royal Bank of Canada is currently the largest Canadian bank with $176.7 billion in market cap. Based on its fiscal 2022 (ended in October 2022) revenue figures, it generated nearly 43% of its total revenue from its wealth management segment, and another significant portion, or nearly 23%, of its revenue came from the personal and commercial banking segment. Besides these two segments, Royal Bank’s portfolio also includes investor and treasury services, insurance, and capital markets offerings.
This well-diversified portfolio helps the bank reduce its risk profile, making RY stock suitable even for conservative investors who don’t want to take unnecessary risks in the stock market.
Royal Bank’s strong financial growth track record
In the second quarter of its fiscal year 2023 (ended April), Royal Bank’s total revenue rose 20% from a year ago to $13.5 billion with the help of improved performance of its capital market segment. Despite higher revenues, however, its adjusted quarterly earnings dived by 11.7% year over year to $2.65 per share due mainly to higher provision for credit losses, also missing Street analysts’ estimate of $2.79 per share.
While temporary macroeconomic factors are increasing Royal Bank’s provision for credit losses, its long-term financial growth trends remain solid. To give you an idea, the largest Canadian bank’s total revenue jumped 20% in five years between its fiscal year 2017 and 2022. To add optimism, its adjusted annual earnings jumped 48% to $11.19 per share during these five years, despite facing global pandemic-driven challenges in between. These growth trends clearly reflect Royal Bank’s potential to continue growing in the long term, making RY stock look attractive to buy and hold.
RY stock’s attractive dividends make it look cheap
Having some quality Canadian dividend stocks can significantly decrease your overall risk profile, as you can expect to keep receiving passive income from dividends even in difficult market environments. That said, Royal Bank could arguably be one of the safest dividend stocks on the Toronto Stock Exchange to hold for the long term.
In its fiscal year 2022, Royal Bank of Canada’s dividend per share increased by 14.8% YoY. In the last five years until its fiscal year 2022, its dividend per share jumped more than 42% to $4.96 per share in 2022 from $3.48 in 2017.
At the current market price of $127.57 per share, Royal Bank stock offers a decent dividend yield of 4.2%. And its strong financial base gives it the ability to continue increasing dividends in the coming years as well, making RY stock look cheap to buy after it has lost nearly 8% of its value in the last six months.
