As the largest Canadian bank, Royal Bank of Canada (TSX:RY) has long been considered a strong long-term investment known for delivering consistent earnings growth and steady dividend payouts. After surging 29.3% in 2024, RY stock has pulled back slightly in 2025, trading 1.5% lower year to date, even as the TSX Composite Index has gained 1.9%. With this, the stock is currently priced at $170.69 per share and has a market cap exceeding $241 billion.
Despite the recent pause in its rally, long-term investors know that temporary fluctuations don’t define a stock’s future. In fact, what truly matters is where it’s headed over the next five or 10 years. In this article, let’s take a closer look at Royal Bank’s recent financials, growth potential, and expected performance in the next five years.
Why did Royal Bank stock surge in 2024?
Royal Bank’s last year’s surge could be attributed to a combination of positive factors, including strong earnings growth, higher interest rates boosting its net interest income, and the successful acquisition of HSBC Canada. The bank benefited from robust demand across its personal and commercial banking segments and solid loan and deposit growth. Its wealth management business continued to boom, posting a 27% YoY (year-over-year) jump in earnings in its fiscal year 2024 (ended October 2024).
On top of that, RBC’s ability to control costs while maintaining revenue growth helped drive profit margins higher, leading to an 11% YoY rise in its net income for the fiscal year to $16.2 billion.
What could be behind the recent dip?
RY stock has taken a slight breather in early 2025. However, it might not be about the company itself but about the broader market. Macroeconomic uncertainties, growing global trade tensions, and speculation around more interest rate cuts might have weighed on investor sentiment of late.
While lower interest rates could benefit Royal Bank in the long run by increasing loan demand, in the short term, banks tend to face some pressure as their net interest margins initially tighten before stabilizing. These expectations might have led to some profit-taking, causing RY stock to pull back slightly from its highs in 2025.
Why does RY stock look like a winner for the next five years?
Despite the recent market volatility, Royal Bank’s financials remain rock solid. In the October 2024 quarter, the bank’s net income rose 7% YoY to $4.2 billion, with its earnings rising 5% to $2.91 per share. Its recent acquisition of HSBC Canada played a big role in this performance, as it contributed about $265 million to the bank’s bottom line.
With its expanding digital banking platform, growing wealth management division, and the HSBC Canada acquisition boosting earnings, Royal Bank’s long-term growth outlook remains strong. Moreover, its strong capital position provides it with financial flexibility for further acquisitions or growth opportunities.
Given these strong fundamentals, I wouldn’t be surprised if RY stock continues to deliver strong returns for patient investors in the next five years. Also, its current dividend yield of 3.5% makes it even more attractive to consider.
