Canada’s banking system is one of the soundest in the world. The most recent validation was in the 2007-2008 financial crisis. Its central bank didn’t receive any bailout requests or reports of bank failures. In November 2021, the country’s giant lenders delivered a dividend bonanza to investors after collectively amassing $40.5 billion in cash from unused provisions for credit losses (PCLs) during the global pandemic.
Notably, the Big Five banks are bedrocks of stability, owing to more than 100 years of dividend payments. If you’re investing in the financial services sector this year, should Royal Bank of Canada (TSX: RY), the largest TSX company by market cap, be your top choice?
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Banking outlook 2025
Fitch Rating released last December 2024 its outlook for Canadian banks in 2025. The renowned credit rating agency expects the financial profiles to remain broadly “neutral,” notwithstanding a slowdown in economic activity. The banks boast solid financial profiles and have relatively healthy asset quality metrics, stable funding, and good capitalization.
RBC analysts said taming inflation in 2024 was a major victory for the Bank of Canada. They expect additional rate cuts to trickle through the economy and expand on a per capita basis for the first time in three years. However, new headwinds will arise in the path forward.
Position of strength
Its president and chief executive officer, Dave McKay, said, “In 2024, RBC relentlessly pursued our ambition to stay ahead of evolving client expectations and create unparalleled value.” He added that the $241.77 billion bank enters 2025 from a position of strength.
In fiscal 2024 (12 months ending October 31, 2024), net income increased 11% year over year to $16.2 billion. Insurance (33%) and wealth management (27%) were the business segments that reported the most significant earnings growth. RBC returned around $8.1 billion to shareholders via common dividends and share buybacks. For the full fiscal year, PCL increased 31% to $3.23 billion from a year ago.
The recently acquired HSBC Canada increased net income by $453 million. McKay said acquiring HSBC was a defining moment and a pivotal milestone in RBC’s client-driven growth story. It also strengthened the bank’s position as a competitive global financial institution.
On January 9, 2025, RBC announced a partnership with Cohere, a security and privacy-focused enterprise AI, to develop and launch “North for Banking.” The platform will provide enterprise generative artificial intelligence (Gen-AI) solutions optimized for financial services.
According to Dr. Foteini Agrafioti, RBC Borealis senior vice president and RBC chief science officer at RBC, the Canadian big bank is on a path to redefine what a bank is capable of, and AI will play an important role in RBC’s future success.
Stock for keeps
RBC announced a 4% dividend during the release of the fourth-quarter and full-year fiscal 2024 results. It started paying dividends in 1870 (154 years) and continues to do so. The share price is $170.92, while the dividend yield is 3.23%. However, if you invest today, the big bank is for keeps. You won’t sell the stock ever.
