Long-term investors usually consider Royal Bank of Canada (TSX:RY) to be one of the most stable Canadian stocks, as it has a decades-long track record of posting strong financial growth, even during challenging economic environments. RY stock, however, has turned mixed in recent years. After ending 2021 with solid 28.4% gains, it fell 5.2% in 2022. A late recovery last year helped Royal Bank stock end 2023 on a positive note with 5.3% gains.
Before we discuss its long-term growth outlook in efforts to figure out where Royal Bank stock could be 10 years from now, let’s quickly take a closer look at factors that have helped its share prices rise in the last few months.
Royal Bank stock’s recovery in late 2023
As COVID-19-driven shutdowns and restrictions on physical activity started taking a big toll on economic growth, central banks in the United States and Canada took liquidity measures and made steep reductions in interest rates to spur economic recovery. While an environment of extremely low interest rates lifted consumer demand, these measures, along with rallying commodity prices, also drove consumer inflation to its highest level in multiple decades.
This is one of the key reasons why the Bank of Canada and the U.S. Federal Reserve, in early 2022, began a series of rapid interest rate hikes, which continued till July 2023. As these restrictive policy measures gradually eased inflationary pressures in the second half of 2023, central banks hinted that they might consider slashing interest rates on multiple occasions in 2024. This was one of the main reasons for the TSX Composite benchmark’s solid 8.1% gain in the December 2023 quarter, which also led to a strong 12.9% increase in Royal Bank’s share prices.
Where will RY stock be in 10 years?
In the five years between its fiscal years 2018 and 2023 (ended in October), Royal Bank’s total revenue jumped 32% from $42.6 billion to $56.1 billion, reflecting its continued focus on diversifying its revenue streams by further expanding its portfolio of financial services. Despite facing the global pandemic-driven macroeconomic challenges in between, its adjusted annual earnings in these five years rose 32% from $8.62 per share to $11.38 per share. Moreover, its dividend per share also saw a 42% increase during these five years.
Royal Bank has also raised its bets on digitizing and personalizing its products and offerings in recent years by investing heavily in innovative technology, which could pay off well in the long run.
After recovering by 12.5% in the last three months, Royal Bank stock currently trades at $130.53 per share and a market cap of $183.1 billion. The stock offers an attractive dividend yield of 4.2% at this market price. Despite the recent volatility, its share prices have gone up by 86.5% in the last 10 years. Simply put, an investment of $5,000 in RY stock a decade ago could have turned into $9,325 today, excluding the income from its dividends.
Predicting the future stock price of any company is nearly impossible as it involves many factors and uncertainties, but Royal Bank’s solid financial foundation and consistent focus on pursuing long-term growth gives its stock the potential to generate even higher returns in the next 10 years.
