Royal Bank of Canada (TSX:RY) is one of the largest banks in Canada and is a major player in the finance sector. Royal Bank of Canada’s significant presence in the financial market makes it one of the best investment options to add to your portfolio as a Canadian investor.
In this article, I’ll discuss why this Canadian Stalwart is a must-buy in the present situation.
Royal Bank’s size and diversification matters
As one of the largest banks in Canada, Royal Bank offers a very diversified portfolio of financial services. These range from personal and commercial banking, insurance, corporate banking, wealth management and capital market services. The bank predominantly operates in Canada and has additional operations in the U.S. and other countries.
As one of the top 10 largest banks in the world, Royal Bank certainly falls under the umbrella of “too big to fail,” even in international terms. The company’s deep integration into the global financial system means that if Royal Bank were to go down, it could drag a good portion of the global economy with it. In this sense, the bank’s massive size provides investors with a relative moat and a central bank put, if you will.
The company’s diversified revenue streams are also noteworthy, as they protect investors from shocks in one portion of the market. If we do see a residential or commercial real estate crash, Royal Bank’s wealth management and capital markets divisions can offset some of these losses.
With one of the better valuation multiples in the sector, I think Royal Bank’s relative quality premium should be worth considering for the average investor.
Where will Royal Bank go from here?
Over the past five years, Royal Bank stock has seen its revenue surge around 32% to $56.1 billion. At a valuation of just more than $180 billion, this is a company that’s trading at a reasonable multiple, particularly given the incredible profitability profile this lender has been able to maintain.
The company’s more recent quarterly growth numbers have been impressive, with analysts expecting nearly $12 in earnings for this fiscal year. If that’s the case, Royal Bank’s forward multiple would drop to around 11 times, which is even more attractive for value-conscious investors.
Royal Bank’s recent acquisition of the Canadian unit of HSBC is something investors will want to keep an eye on. In my view, this deal indicates Royal Bank doesn’t want to see its growth rate slow and is still willing to go after market share. As a result of this deal, Royal Bank will assume the more than 700,000 HSBC clients from all over the country to their portfolio. The merger is one of the largest in the banking history of Canada, which is expected to increase the Royal Bank’s share price and enable the bank to pay higher returns to their investors.
Bottom line
Royal Bank of Canada continues to earn strong profits and offer higher returns to its investors. In 2023, the bank increased its dividend twice, providing investors with an even more juicy yield of 4.2%.
For those thinking truly long term, there are few better options in the market than this stalwart.
