3 Things About Royal Bank of Canada Every Smart Investor Knows

Royal Bank is a giant on the TSX and has made some long-term investors quite rich.

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Royal Bank (TSX:RY) is the largest company on the TSX with a current market capitalization of nearly $185 billion. The stock has delivered solid returns for patient investors, continues to be extremely profitable, and the dividend offers a good yield.

The banking giant is up 20% in the past three months. Investors who missed the rally are wondering if Royal Bank is still cheap and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Rising Royal Bank stock

Royal Bank trades near $132 per share at the time of writing. That’s up from $108 at the low point last fall and not too far off the 2022 peak around $147 the stock reached on the post-pandemic surge.

A quick look at the long-term chart suggests that buying Royal Bank stock at any time should eventually deliver good gains for patient investors. Taking advantage of dips can boost returns for the portfolio.

Investors who bought the stock below $50 just 12 years ago have nearly tripled their money while collecting steady and growing dividends.

Solid earnings

Royal Bank is a profit machine. The company generated adjusted net income of $16.1 billion in fiscal 2023, which was up a bit from 2022. Return on equity (ROE) remained robust at 14.2%. This occurred amid headwinds from rising interest rates in Canada and the United States that slowed capital markets activities and have put borrowers with too much debt in difficult situations. Royal Bank increased its provisions for loan losses last year, but the overall loan book remains in good shape.

Royal Bank finished fiscal 2023 with a common equity tier one (CET1) ratio of 14.5%. This is way above the 11.5% required by the bank regulator, so Royal Bank ended the year with significant excess capital. A good chunk of the money will be used to finalize the $13.5 billion purchase of HSBC Canada, but Royal Bank will still have adequate capital on hand to ride out any market turbulence that could be on the way.

Reliable dividends

Royal Bank raised the dividend twice in 2023. Investors who buy the stock at the current price can get a 4.2% dividend yield. Shareholders normally receive an increase every year, aside from the mandated pause during the pandemic, and the bank has paid out part of the profits annually since the 1800s.

The bottom line on Royal Bank

The sharp surge in the share price that occurred over the past three months is a good reminder to investors that it is difficult to try to time the market. Staying on the sidelines can result in missed capital gains and lost dividends.

A pullback is reasonable to expect in the coming months, but investors with some cash to put to work in a TFSA or RRSP might want to start a position in Royal Bank at the current level to begin collecting the dividend and look to add to the holding on the next dip. If you are a buy-and-hold investor, RY stock deserves to be on your radar.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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