I Looked Past the 2.5% Yield, and Here’s What Else RBC Stock Offers

Royal Bank of Canada (TSX: RY) stock offers investors more than just a 2.5% dividend yield. For giants like Royal Bank of Canada, or RBC, growth is slow and steady, not fast and volatile like that of small tech stocks. Significant exposure to Canadian and American personal banking, and diversification in capital markets, commercial banking, and wealth management services help it provide both dividends from interest income and capital appreciation from the performance of assets under management.

What else does RBC stock offer?

Capital appreciation

RBC’s biggest income generator is still personal banking, followed by fees from Capital Markets and Wealth Management. To give you a glimpse of the Capital Markets’ business, RBC was the only Canadian bank among the 21 banks involved in the SpaceX mega IPO.

IPOs, mergers and acquisitions, and companies raising equity and debt capital are driving growth in the Capital Markets segments. Even the wealth management business saw higher fee-based revenue as transaction activity increased and clients added new assets. This growth is visible in RBC’s share price, which has grown 63% since January 2025. During this time, the tariff war began, Canada’s infrastructure investment picked up, and artificial intelligence (AI) and energy stocks attracted investments in these sectors.

And it is not just RBC; other bank stocks also grew as central banks did not increase interest rates. However, this capital appreciation is cyclical. The RBC share price barely appreciated in 2022 and 2023 when both Canadian and United States interest rates peaked.

However, RBC stock is in a long-term growth trend, as its growth is tied to Canada’s economy. It is the best way to invest in Canada’s economic growth and a better option than an index fund because of its dividends.

RBC’s dividend growth drivers

Looking at the data from 2000 onwards, RBC has grown quarterly dividends in 24 out of the 26 years. The only time when dividend growth was paused was in 2009 and 2010, after the Global Financial Crisis shook the world’s banks and even led to the collapse of some too-big-to-fail banks. While RBC paused dividend growth then, it sustained the 2008 dividend per share.

The average dividend growth rate is 7% since the pandemic. Its third-quarter payout ratio is at a reasonable level of 69%. While the quarterly ratio is above its target range of 40–50%, the annual ratio normalizes closer to the target range.

Dividend reinvestment plan

If capital appreciation and dividend growth were not enough, the bank also offers a dividend reinvestment plan (DRIP). From May 24, 2024, until further notice, RBC will use dividends inside a DRIP to purchase common shares in the secondary market, with no discount from the average market price. This will ensure there is no equity dilution, giving it flexibility to grow dividends.

A DRIP is only beneficial when you invest through a registered account like a tax-free savings account (TFSA). Any investments made through a TFSA are exempt from dividend tax and capital gains tax, which helps you make the most of a DRIP.

How to invest in RBC

RBC is a stock to accumulate in small quantities. While buying at the peak is not recommended, long-term investors can still do a systematic purchase, say buying two or three shares every month. They can benefit from dollar-cost averaging.

An alternative is to invest a lump sum every year in March as that is a seasonally weak month for RBC. In addition to making annual contributions, consider opting for DRIP to compound your returns.

A $10,000 investment in January 2020 could have bought you 93 shares at $107.31 per share. This paid $399 in annual dividends. A seven-year DRIP compounding could increase the share count to around 113. When combined with dividend growth, it could increase annual dividends to $743 in 2026. The table below was compounded annually, but in reality, compounding will be quarterly.