Investors may not realize it, but Royal Bank of Canada (TSX: RY) is massive. I’m not talking as a bank, I’m talking as a worldwide stock. Not only is RY stock the largest stock on the TSX today, but it’s also larger than some of the largest American banks out there!
Yet with its size, investors might think that the growth is over — far from it. The Big Six bank has proven its worth quarter after quarter, year after year, recession after recession. And that happened once again after the recent third-quarter earnings. The question is, though, can it keep it up? Let’s dig in.
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What happened?
First, let’s look at what’s been happening in terms of RY stock and compare it to its peers. RY stock offers retail banking, wealth management, capital markets, insurance, and U.S. commercial banking. The third quarter saw record net income and earnings per share (EPS), with material year-over-year growth across all its segments. But can the same be said for the other banks?
Toronto-Dominion Bank is also large and has Canadian retail and U.S. personal and commercial banking, with large exposure to the United States. It’s seen steady retail revenue, but nothing to post headlines about. Bank of Nova Scotia also has a large international footprint, especially in Latin America, but performance has been mixed due to international exposure and cost resets.
There’s also Bank of Montreal, which is diverse and has solid results, but it doesn’t have the company-wide record beat that RY stock has. National Bank focuses more on Quebec with stable performance, so it’s nothing exciting. Finally, Canadian Imperial Bank of Commerce is more concentrated in Canadian personal and business banking, seeing improvement but lagging peers in scale and diversification. Overall, RY stock is a clear winner.
Behind the growth
Why is RY stock doing so well compared to its peers? Its record net income of $5.4 billion rose 21% year over year. Management emphasized growth across all business segments, something its peers cannot match, creating a strong catalyst for growth.
It’s also cash-rich, with strong profitability and return metrics that matter to investors. It shows management is earning more on shareholders’ capital. Meanwhile, it’s doing all this while improving total provisions for credit losses on loans. Lower credit drag means stronger forward earnings power versus peers.
Then there’s the momentum and dividend. RY stock holds a solid 3% dividend yield and a payout ratio, leaving room for plenty of growth. What’s more, it trades at just 13.7 times earnings at writing. So, investors can buy up improving earnings without paying top dollar. And these beats have created solid momentum for both the business and shares. Altogether, it’s a leader in the industry that doesn’t look as though it’ll give up its top spot any time soon.
Bottom line
When it comes to Big Six banks, RY stock seems to be leagues ahead. The combination of record performance, company-wide earnings beats, materially higher returns and improving metrics shows it’s a growth story that’s not done. While the other banks need to scale out, RY stock simply needs to sit back and stay the course. And investors can get in on that upside for a strong price, making it a solid buy on the TSX today.
