This Canadian Stock Could Hit $1 Trillion Market Cap First

Canada’s largest publicly listed company could be the first to hit the $1 trillion market cap, but the time frame could be decades.

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Market capitalization matters to stock investors, because it tells the value of an investment prospect. All stock exchanges group their publicly listed companies in all primary sectors according to asset size. Categorizing the constituents also helps investors create a balanced portfolio of large-, mid-, and small-cap stocks. Some people invest in riskier micro-cap stocks.

Most investors are biased or partial to large-cap stocks or companies whose market values are between $10 billion and $200 billion. These firms are usually mature, financially stable, and can endure market volatility. However, none in the Toronto Stock Exchange is a mega-cap stock with a more than $200 billion market value.

Race to $1 trillion

If there’s a race to a $1 trillion (Canadian dollars) market cap among TSX stocks, two big banks and two railway operators are the top candidates. Only the Royal Bank of Canada (TSX:RY), Toronto-Dominion Bank, Canadian National Railway, and Canadian Pacific Kansas City have market caps of over $100 billion.

Shopify is a dark horse, although its market cap is below $100 billion. The $96.41 billion tech giant dethroned RBC on May 6, 2020, when its size surged to $120 billion due to the e-commerce boom. Unfortunately, the reign was brief, as RBC reclaimed the crown in March 2021 following the tech sector’s pullback.

In the U.S., only Apple, Microsoft, Alphabet, Amazon.com, and NVIDIA are in the US$1 trillion club.

Most valuable TSX company

As of this writing, RBC is the most valuable TSX company, with a market cap of $176.31 billion. The figure in 2023 is 409% higher than at year-end 2001, but only 17.63% of $1 trillion. Based on the stock’s performance in the last 22 years (2001 to 2023), including spikes and dips, RBC’s market cap increases by around $6.43 billion annually.

Canada’s largest bank isn’t a high-growth tech stock, so don’t expect a Shopify-like phenomenal run in 2020. A straight-line approach would take RBC to reach the $1 trillion market cap in 128 years.

Strength and stability

Investing in RBC is worth every dollar, given the bank’s rank globally (number 94), solid financial base, and fantastic dividend history. Canada’s largest bank started paying dividends in 1870. If you invest today, the share price is $126.87, while the dividend yield is 4.23%.

In the second quarter (Q2) fiscal 2023 (three months that ended April 30, 2023), RBC’s net income declined 14% year over year to $3.6 billion. Its loan loss provision rose to $600 million compared to the $342 million recovery in Q2 fiscal 2022. Despite lower profits, the high-quality stock raised its dividend by 2%.

Its chief executive officer Dave McKay said, “RBC will never compromise on doing right by our clients and delivering sustainable, long-term value to them, our communities and shareholders.” He added, “Our focused growth strategy, prudent risk and capital management, and diversified business mix exemplify our strength and stability amidst a complex macro environment.”

Stock for all investors

Hitting $1 trillion is an incredible feat, and we might not see the Royal Bank of Canada reach the mark in our lifetime. Nevertheless, the big bank stock remains a solid investment option for beginners, regular investors, wealth builders, and retirees.

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Alphabet, Amazon.com, Apple, Canadian National Railway, Canadian Pacific Kansas City, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

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