Is Royal Bank of Canada a Buy?

Here’s why Royal Bank of Canada (TSX:RY) is certainly worth a look for investors with a long-term investing time horizon.

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When it comes to investing in the Canadian banking sector, Royal Bank of Canada (TSX:RY) is the leading option most investors trend toward. This company is one of the largest on the Toronto Stock Exchange and offers high dividends to its investors. So, for those seeking excellent total returns, Royal Bank has certainly proven to be a long-term buy.

The question now is whether this company is still worth buying in light of softness in the financials sector and certain pockets of weakness in areas like commercial lending. Let’s dive.

Canada’s biggest bank is worth a look

Royal Bank of Canada is one of Canada’s largest banks and positions itself as one of the leading banks in terms of market capitalization. The bank provides extensive financial services, like personal and commercial banking, insurance, corporate banking, capital market services, and wealth management services. 

With an incredible history of being in business for 150 years, Royal Bank has served around 17 million clients and operating primarily in Canada, with operations in the United States and other nations. 

Strong financials make this a company to buy and hold long term

Royal Bank’s recent financials paint a picture of a company that’s not seeing any sort of material weakness from the global turmoil other regional banks have seen over the past year.

In fact, Royal Bank’s first-quarter (Q1) results were notably stronger than many of its global and Canadian peers. The lender brought in net income of $3.85 billion, which represents an increase of 12% year over year. This sort of profit growth drove an impressive return on equity figure of more than 13%, which was in and of itself up 220 basis points over the same quarter the year prior. On a diluted earnings-per-share basis, Royal Bank brought in $2.50, meaning the company’s dividend-payout ratio stands at around 50%. That’s sustainable for long-term investors moving forward.

Is Royal Bank a stock to buy and hold long term?

Given Royal Bank’s strong earnings and rock-solid balance sheet, this lender is among the safest and most defensive financial stocks Canada has to offer. There are plenty of other mid- and small-sized banks to choose from. But for investors looking to move up on the quality spectrum, this is the way to do so, in my view.

The company’s recent acquisition of HSBC Canada should further its growth profile over the long term. Royal Bank’s dividend is well-covered and supported by continued earnings growth. Over time, there’s no reason not to expect double-digit annual total returns from this stock for those who take a patient approach.

So, yes, in my view, Royal Bank is a solid long-term buy at current levels.

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.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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