1 Dividend Super Star to Buy Over Royal Bank Immediately

Investors might think that bigger is always better, but that’s just not true — even for some safe stocks like this dividend all-star.

| More on:

When it comes to dividend investing, bigger doesn’t always mean better for Canadian investors. While large-cap stocks might seem like the safest bet, many smaller or mid-sized companies often offer higher dividend yields and stronger growth potential.

For example, according to recent data, small-cap dividend stocks on the TSX have historically provided an average yield of about 4%. Meanwhile, large-cap stocks tend to hover around 2-3%. The key is to focus on the right metrics, such as payout ratios and growth potential, rather than just the size of the company.

Royal Bank

Royal Bank of Canada (TSX:RY) has long been a strong performer, boasting a market cap of $232.08 billion and consistent growth. In the past, Royal Bank has delivered solid revenue growth driven by its diverse financial services. For the third quarter (Q3) of 2024, RBC reported a net income of $4.5 billion, up 16% year over year, with diluted earnings per share (EPS) climbing 13%. The bank’s capital strength, reflected in its common equity tier-one (CET1) ratio of 13.0%, shows why it’s a dominant player. However, despite its steady performance, RBC’s compound annual growth rate (CAGR) for dividends over the past decade has been modest. In fact, it is lagging behind expectations for a stock of its stature. With a five-year average dividend yield of 3.91%, some investors feel RBC could have done more in terms of dividend growth.

While Royal Bank remains a stable option, its relatively low CAGR for dividends highlights a gap compared to other financial stocks. With a forward annual dividend yield of 3.46%, it’s clear that investors can enjoy decent, though not exceptional, returns. As Dave McKay, president and chief executive officer (CEO) of Royal Bank, noted, “RBC continues to operate from a position of strategic and financial strength.” However, for those seeking higher dividend-growth rates, it may be worth considering other options alongside RBC in a balanced portfolio.

CIBC

Canadian Imperial Bank of Commerce (TSX:CM) offers an appealing alternative, particularly for dividend-focused investors. With a forward annual dividend yield of 4.47% and a consistent CAGR in its dividend growth, CIBC provides both security and growth. In Q3 2024, CIBC reported impressive earnings momentum, with a net income of $1.8 billion, up 25% year over year. The bank’s strong results are backed by its commitment to delivering value through shareholder returns and capital efficiency.

CIBC’s earnings momentum and its focus on strategic initiatives make it a reliable choice for investors. As Victor Dodig, CIBC’s CEO, said, “Our strong third-quarter results reflect the consistent, disciplined execution of our client-focused strategy.” With a CET1 ratio of 13.3%, CIBC remains financially robust, making it a solid option for dividend investors seeking both growth and stability.

Bottom line

In a nutshell, while bigger companies like Royal Bank may offer stability, they don’t always deliver the highest dividend growth. CIBC, however, brings a solid combination of strong earnings momentum and a higher dividend yield, making it an excellent choice for Canadian investors looking to balance growth and income in their portfolios. So, remember, size isn’t everything. Focus on what works best for your long-term goals!

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 Amy Legate-Wolfe 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.

More on Dividend Stocks

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

4 Under-$20 Dividend Stocks Perfect for Income Investors

Given their solid underlying businesses and high yields, these four under-$20 dividend stocks are ideal for income-seeking investors.

Read more »

grow money, wealth build
Dividend Stocks

Act Now: 1 Top Stock and 1 REIT Offering 8% Yields for Canadian Investors

Slate Grocery REIT (TSX:SGR.UN) and another top ultra high-yielder that looks worth picking up!

Read more »

woman looks at iPhone
Dividend Stocks

1 Canadian Stock to Buy and Hold Forever in Your TFSA

This Canadian stock offers perhaps the most value and best long-term outlook for any investor looking to buy and hold…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Top TFSA Stocks for Canadian Investors to Buy Now

Here’s why TFSA investors should buy and hold high-quality stocks in their self-directed, tax-sheltered accounts for the long run.

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Dividend Stocks

Is Dollarama Stock A Buy, Sell, or Hold for 2025?

Canada’s leading dollar store retail chain could give you the best value for your money in 2025.

Read more »

shoppers in an indoor mall
Dividend Stocks

Here Are My Top 3 Real Estate Stocks to Buy Now

With interest rates likely to keep dropping, three real estate stocks are strong buys for income-focused investors.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

2 Canadian Dividend Stocks to Buy Heading Into 2025

These stocks offer high yields and could be undervalued right now.

Read more »

happy woman throws cash
Dividend Stocks

Invest $7,000 in This Dividend Stock for $1,100 in Passive Income

While traditional dividend stocks can help you build passive income, this stock can earn you $1,000 in annual dividends and…

Read more »