It’s hard to find the perfect dividend stock to buy, especially given the uncertainties facing the Canadian and U.S. economies as inflation sticks around while massive question marks hover over the ongoing AI data centre buildout. With valuations also on the slightly higher end, questions linger as to whether a nasty stock market correction or bear market could be in the cards to get rid of all that froth.
As we learn more about just how AI applications change the corporate world, though, I think that there’s a chance that seemingly high multiples on a wide range of stocks might prove cheap. It all depends on how things play out, whether inflation can go away without having the Bank of Canada or the U.S. Federal Reserve raise rates by all too much in the coming year.
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Where’s the value these days?
Also, whether AI can produce monetary value remains the big question, as investors gravitate away from the overbought, obvious winners from the AI boom, and towards some of the names that are actually harnessing the power to power earnings growth or chip away at operational costs behind the scenes.
The big AI winners? They might not be what you think. As the Canadian banks make use of the technology to augment and selectively automate some of the more tedious tasks, perhaps it’s the financial sector that could be home to some of the larger, earlier winners from this boom going on in AI.
And, of course, I’d look for the big banks to be extremely return-on-investment-focused, rather than encouraging tokenmaxxing (which is pretty much using AI as much as possible, even in cases where it’d be seen as a waste of tokens), as they look to transform themselves for this next technological era.
Royal Bank of Canada
One perfect stock that’s poised to win big, in my view, is Royal Bank of Canada (TSX: RY). Even if there’s no such thing as a “perfect” TSX stock, shares of RY, I think, are the closest thing to it, especially when you consider the company’s grand plans with AI and how high it ranks when it comes to AI talent development in the banking scene.
In banking, Royal Bank takes the number-one spot for AI. Whether we’re talking about a talented AI research team, smart infrastructure bets, or clear AI-driven targets, it’s clear that the bank is leading the way when it comes to adopting the new technology.
So, if you’re like many investors and are growing tired of the capital expenditures that some of the hyperscalers have been spending, I think that a name like Royal Bank is rather refreshing. It’s one of the firms that’s proving that AI can generate serious value, and it will be interesting to see if management can keep raising the bar on their financial targets.
For now, the firm aims to produce between $700 million and $1 billion worth of enterprise value from AI by the end of the year. There are only five and a half months to go in the year, and Royal Bank looks poised to achieve its goal, perhaps on the higher end of the range.
With a 2.4% yield and generous dividend hikes likely looming, I wouldn’t stand in the way of the $425 billion banking giant.
