Is Royal Bank of Canada Stock a Buy in 2024?

RBC (TSX:RY) stock looks strong heading into second-quarter earnings, so let’s look at what’s been happening with the biggest bank.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published May 15, 2024 3:45 pm EDT

| More on: RY

The biggest of the Big Six banks, and indeed the biggest of TSX stocks, has been a strong performer so far in 2024. Shares are back trading near all-time highs and looking to climb even further. But if you’re looking for more returns in 2024, is it too late to buy Royal Bank of Canada (TSX:RY)?

stock research, analyze data — Image source: Getty Images

What happened?

Over the last few months, RBC stock has climbed as the company continued to demonstrate its strength as the country’s largest bank. Not only was it able to cut back on provisions for loan losses, its most lucrative sector climbed higher.

That’s the wealth and commercial management sector, which RBC stock has long demonstrated is its core performer. And this recently became even more true as the company expanded through the acquisition of HSBC Canada.

The acquisition won’t just bring in new clients but high-income newcomers to Canada. While costly, it’s quite clear that the benefits far outweigh the costs. And could indeed see the company become even more ahead of the rest in terms of size.

Earnings rising higher

As mentioned by management, RBC stock has set itself up with the “right strategy in place to grow today while also generating long-term value for shareholders.” And this has been demonstrated time and again through earnings.

We can see this by narrowing our focus onto the last few quarters and identifying some strong momentum. During the third quarter of 2023, net income came in at $3.9 billion for RBC stock, with diluted earnings per share (EPS) at $2.73. Total provisions for credit losses (PCL) came to $616 million as well.

By the fourth quarter, net income climbed to $4.13 billion, with diluted EPS at $2.90. Total PCLs also rose to $720 million, only slightly increasing compared to its counterparts. When the first quarter came around, net income shrank back to $3.6 billion, with diluted EPS at $2.50 and total PCL climbing higher to $813 million. Yet shares jumped from earnings, as the company reported a strong bottom line, with higher profits compared to estimates on higher interest and fees income.

What to watch

RBC stock is now lying gin wait for the time in which the economy starts to shift. The company continues to gain some confidence around the markets, with interest rates now stabilizing and investors merely waiting for that moment when the first cut comes.

And don’t forget, while the company has put aside PCLs, it doesn’t mean that the stock will lose money on those lose necessarily. In fact, even just last year the company predicted a recession would come in the summer, and never transpired. So, instead, it’s taken a “better safe than sorry” approach that is now paying off.

When rates start to fall then, RBC stock expects that the company will be able to capture capital markets revenue. This should certainly help the market and RBC stock, as there will likely be a ramp up from acquisitions and loan-taking.

Overall, RBC stock has had a strong start to the year. And as interest rates come down, it looks well positioned to end 2024 even stronger, especially when there is a dividend yield of 3.86% to consider.