The Canadian banks have finally been showing some improvement over the last month or so. Yet, perhaps the most positive comes from Royal Bank of Canada (TSX:RY). That being said, I wouldn’t blame investors wondering whether there was another dip coming, and perhaps think about taking out returns.
However, I would urge you not to. There is a lot more to come for Royal Bank stock. So here’s why you should continue to stick with your long-term goals.
Image source: Getty Images
First, the obvious
To really find out how Royal Bank stock is doing, first we’ll take a look at the company’s most recent earnings report. During the fourth quarter and full-year 2023 report, the company saw net income hit $14.9 billion for the year. This was down 6% from the year before, with diluted earnings per share down 5% as well.
The results also included an increase in total provisions for credit losses of $2 billion compared to a year ago. This was to cover the losses in personal and commercial banking, as well as capital markets. While it’s tough to swallow those losses, the company did see benefits from lower taxes, as well as some loan and wealth management growth.
Overall, the the bank sailed past earnings estimates set by analysts. What’s more, its balance sheet remains strong, while still prepared for further loan losses. So let’s now move into what investors should look forward to in the next year.
HSBC buy
Again, let’s get obvious here. One of the items that investors have to look forward to coming out of this downturn is the acquisition of HSBC for $13.5 billion. While still needing approval, the acquisition would mean Royal Bank stock would take over a banking institution that other banks have been only too happy to admit to wanting for themselves.
Yet, if investors are worried given push back from people as big as Conservative Leader Pierre Poilievre, analysts say don’t be. There have been issues surrounding whether a big bank getting bigger is bad for Canadians. But in this case, HSBC is already big. Further, it wasn’t as if HSBC was a price leader that would keep costs down for Canadians. Never mind the fact that HSBC put itself up for sale.
Which is why the Competition Bureau happily gave its blessing. So now, Royal Bank stock is on the verge of completing one of the largest mergers in Canadian banking history — a merger that could see its share price (and dividend!) rise even higher.
What investors might get
So let’s get into some examples, shall we? Should Royal Bank stock see the merger come through in the next year, with share prices rising back to 52-week highs, it could very interesting for investors. Let’s say then that you were to pick up Royal Bank stock right now with $5,000. Here’s what that could look like should the investment hit 52-week highs.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| RY – now | $126 | 40 | $5.52 | $220.80 | quarterly | $5,000 |
| RY – highs | $140 | 40 | $5.52 | $220.80 | quarterly | $5,600 |
In a short period of time (perhaps within the next year) you should see shares hit that $140 mark once more. If that happens, your $5,000 could provide returns of $600! Add in dividends at $220.80, and you now have passive income totalling $820.80! So certainly consider Royal Bank stock, even if we see another dip. Because honestly, I don’t think any dip will last much longer.
