After tanking by over 15% in the previous three months combined, Royal Bank of Canada (TSX:RY) stock has started November on a firm note. RY stock has jumped by 5.8% in the first few sessions of November, as the Federal Reserve’s latest policy decision to hold interest rates steady and largely better-than-expected corporate results continue to boost investors’ confidence.
But is now the right time to buy Royal Bank stock? Before we discuss that, let’s take a closer look at some key factors that have affected its stock price movement of late.
Royal Bank stock
Royal Bank is currently the largest Canadian bank with a market cap of $156 billion, as its stock trades at $111.27 per share with about 10% year-to-date losses. Based on its year-to-date performance, RY is currently the third worst-performing bank stock among Canada’s Big Five. At the current market price, the stock offers an attractive 4.9% annualized dividend yield.
Royal Bank stock’s poor performance in 2023 could primarily be attributed to rising macroeconomic uncertainties, which have triggered a stock market selloff across sectors. As a higher interest rate environment amid inflationary pressures continues to increase borrowing costs for individuals as well as businesses, most lenders across Canada and the United States have witnessed a rapid rise in their provisions for credit losses, trimming their profitability.
Bank investors now fear that if the interest rate and inflation remain elevated for a prolonged period, it could lead the economy into a recession. These fears explain why RY stock and other Canadian bank stocks have trended downwards in 2022 and 2023.
Is now the right time to buy RY stock?
Despite RY stock’s big declines over the last two years, Royal Bank’s recent financial growth trends look stable, thanks to its well-diversified business model. Notably, the largest Canadian bank’s revenue has been exceeding Street analysts’ expectations for four consecutive quarters.
In the quarter ended in July 2023, Royal Bank’s total revenue rose 19.4% YoY (year over year) to $14.5 billion with the help of stronger net interest income and strong volume growth. Despite higher provisions of credit losses, the bank’s adjusted quarterly earnings increased by 11.4% YoY to $2.84 per share, exceeding analysts’ expectations.
As demand and supply continue to approach balance in the future, inflationary pressures are expected to ease further, which will likely encourage central banks in Canada and the United States to eventually ease their monetary policy stance. Considering that, you can expect Royal Bank’s financial growth trends to improve significantly in the coming years.
Although the possibility of a recession might continue to keep RY and most other bank stocks highly volatile in the near term, Royal Bank’s robust balance sheet, diversified business model, and impressive dividend growth track record make its stock worth buying after the recent dip to hold for years to come. While it may not double or triple in value in a short period, an expected recovery in RY stock, along with its attractive dividend payouts, can help you get some steady returns on your investments in the long run.
