Banks continue to have a difficult time nearing the end of 2023. What’s more, most of the Big Six banks put aside even more huge provisions for loan losses heading into 2024. But the one that showed the most sign of strength recently, and which I’ll be buying more of, is Royal Bank of Canada (TSX:RY).
So, as the market continues to show signs of life, let’s look at the three main reasons I’ll continue to buy Royal Bank stock as we head into the new year.
Responsible, reasonable growth
One of the biggest reasons why I’m considering Royal Bank stock is that it’s prepared for the worst and hoped for the best. That’s exactly what we saw during the bank’s most recent earnings report. Royal Bank stock continued to see higher interest rates and slowing growth, with unemployment still rising. So, while the market shows signs of improvement, we’re not there yet.
Royal Bank stock stated that less than a third of its mortgage clients have seen their payments affected by the higher interest rates. Many fixed-rate mortgages, however, are coming up for renewal in the coming years. Therefore, there is an expectation that we could see more clients impacted by higher rates in the coming years, especially as unemployment rates continue to rise.
That’s why Royal Bank stock has remained focused on creating provisions wherever possible. The company’s workforce dropped by 2.5% in the quarter, as the bank cut 2,355 jobs. It also increased its provisions for credit loan losses by $720 million.
Signs of strength
Even though the bank is pretty wary about the future, its earnings stated otherwise. The company beat fourth-quarter profit estimates, seeing a surge in capital markets earnings as well as lower taxes. This helped to offset those provisions the bank has been creating.
Royal Bank stock earned $4.1 billion during the quarter, or $2.90 per share. That’s compared to $3.9 billion the year before and $2.74 per share. In fact, the one area where the company proved to be quite confident is its dividend, increasing it to $1.38 per share quarterly.
Total revenue was also up by 4% year over year to $13 billion, with expenses increasing by 13% to $8.14 billion during the quarter. So, while personal and commercial banking fell by 2%, and with wealth management down by 74%, insurance and capital markets were able to negate some of the lower figures. Insurance increased by 8%, with capital markets up by 36% during the quarter.
Preparation and expansion
The key here is that Royal Bank stock is showing signs of strength while still preparing for an uncertain future of loan losses. Because of this, it should have no problem bouncing back when the market and economy improves. Therefore, the stock looks safe and stable and should even have major growth in its future.
It’s not just in share price either. Royal Bank stock continues to show a lot of growth possibilities in the United States and emerging markets. These can be highly lucrative areas for the stock and its investors. So, while the future isn’t certain for Royal Bank stock, one thing is: Canada’s largest bank by market cap and assets should remain on top for the foreseeable future. And that’s why I’ll continue to pick it up on the TSX today.