The Canadian banking sector is a beacon for stability around the world. Few lending institutions have the track record Royal Bank of Canada (TSX:RY) boasts, with a stock price that’s remained relatively stable (all things considered) during previous crises and turmoil around the world. That’s one of the key reasons the most valuable company by market capitalization remains a core holding for so many Canadians (in addition to the proliferation of ETFs and mutual funds that include Royal Bank as a key weighting).
That’s not to say Royal Bank hasn’t seen its fair share of dips over time – it has. But over time, the bank’s stability has provided ballast for many portfolios, passive or active.
Here’s why I think Royal Bank deserves a spot in most investor portfolios for the long-haul.
Defensive positioning in a cyclical market
Royal Bank of Canada positions itself as the largest investment bank in Canada. The bank offers extensive financial services, like commercial and personal banking, corporate banking, wealth management services, insurance, and capital market services. Royal Bank of Canada has a rich history of more than 150 years, serving more than 17 million customers. The bank primarily operates in Canada, with additional operations in the United States and other nations.
Notably, Royal Bank’s clientele is more global than many of its peers. As one of the top-10 most systemically important banks in the world, this is a name many consider to be “too big to fail.” That sort of central bank pull has a lot of value, and provides defensive positioning in a sector that’s otherwise very cyclical. That’s perhaps the key underlying factor that drives this stock’s long-term investing thesis, at least in my book.
Financials remain strong
Despite concerns of the impacts of an inverted yield curve and a weakening consumer, Royal Bank’s recent results point to an institution that can make money in any point of an economic cycle.
The bank’s net income in the first quarter of 2024 came in at $3.85 billion, rising 12% year over year. This has allowed the company to pay out a dividend yield of 4.1%. That’s lower than many of its peers, but reflects a higher multiple due to the stock’s value. I think paying up for such quality makes sense right now.
Royal Bank’s recent acquisition of HSBC Canada should continue to provide a strong growth path forward as well. So, for value, income, or growth investors, this is a stock that’s worth considering right now.
Why does the average Canadian own this stock?
Royal Bank of Canada offers a diversified business model that enables its customers to enjoy the benefits of its products and services. It has a market-leading presence in Canada and established a multi-platform strategy to enable premium growth. The bank’s industry-leading return on equity, well-judged risk management, and strong balance sheet enables it to deliver higher returns to long-term investors.
In my view, there are few better options on the TSX to consider today. The average Canadian is right to own this stock, and I think the key is to own it for as long as possible.
