Royal Bank is Canada’s largest bank. It is a diversified financial services company offering personal and commercial banking, wealth management, insurance, investor services, and capital markets products and services.
Royal Bank is a premier provider of selected global financial services and one of the top five global wealth managers by assets.
Royal Bank ranks amongst the largest banks in the world based on market capitalization. It serves 17 million clients in Canada, the U.S., and 34 other countries. By geography, Canada is its largest market accounting for 59% of revenues, followed by the US (25%) and other countries (16%). It operates 35 offices in 23 US states.
Royal Bank has five business segments – personal & commercial banking (45% of earnings), capital markets (24%), wealth management (19%), insurance (7%), and investor & treasury services (5%).
The bank maintains a good balance of assets having nearly 50% retail and 50% institutional assets. It operates through the largest financial distribution and branch network in Canada along with leading client franchises. Royal Bank serves a large set of diversified customers ranging from corporate and institutional to high net worth clients.
- Opportunity Score: 62
- Ticker: TSE:RY
- Sector: Financial Services
- Industry: Banks - Diversified
- Market Cap: 121.14B
- P/E: 13.42
- Dividend Yield: 3.99%
- Payout Ratio (Earnings): 53.47%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
RBC holds strong market positions in its five business segments, including the largest full-service wealth advisory business. As a leading retail bank in Canada, Royal Bank is known for providing the best in class services and a wide range of products to its individual and business clients.
It also provides U.S. cross-border banking through online channels for Canadian clients. Expanding its footprint in the U.S. market remains a key priority for Royal Bank’s future growth. RBC has a highly diversified revenue stream. Its P&CB, wealth management, insurance, I&TS, and Capital Markets are leading businesses in Canada.
Royal Bank is using its extensive portfolio of products and digitally-enabled services to cross-sell to existing as well as attracting new clients. It has also been experiencing strong digital adoption (~54%) rate.
The bank’s active digital user base has grown to 7.6 million users and mobile users have also increased by 12% YoY to 5 million. Royal Bank is big with its rewards program and has partnered with iconic brands like Expedia, WestJet, Petro-Canada, Indigo, etc. to provide its clients with a unique rewards program.
Royal Bank’s personal & commercial banking arm is the financial services leader in Canada with a #1 or #2 market share in key product categories. About 4-5x accounts are more likely to consolidate their businesses with RBC in the personal banking segment.
The bank is also evolving its branch format to increase customer relevancy. Its assets under management and administration have continued to grow over the years. Royal Bank has also built a high-performing global asset management business.
The strategic alliance between RBC Global Asset Management and BlackRock Canada further expands its client base. The bank continues to focus on the growth of investment capabilities and innovative solutions for both institutional clients and retail investors.
Royal Bank reported positive earnings growth in the fourth quarter of FY2020. The bank’s latest quarter’s result was adversely affected to some extent by higher PCL as it continued to build reserves during the unprecedented pandemic times. It also suffered from lower interest rates and competitive pricing pressures during the quarter.
The bank, however, witnessed higher earnings in Capital Markets, as well as in Investor & Treasury Services and Insurance. A large asset base, a strong technology foundation, and a rich heritage form a deep moat around Royal Bank’s business. Given its leadership position in the Canadian market and deep understanding of client needs, Royal Bank is in a good position to benefit from the growing Canadian economy.
Royal Bank maintains an average payout ratio of 55% and has returned ~$35 billion in dividends over the last decade. It returned $6.1 billion in dividends in the last year itself. Royal Bank is a Canadian Dividend Aristocrat with a solid track record of dividend growth. It last raised its dividend payout by 2.8% and has a juicy yield of more than 4% presently.
The bank has grown its dividends at more than 7% CAGR over the decade. Royal Bank has maintained its payout ratio in the 40%-50% range in the last five years, which also signifies sufficient room for future growth. It has a strong capital position with a CET1 ratio of 12.5%.
The bank has returned more than 60% of its 2020 earnings to shareholders through dividends and buybacks. Strength in its balance sheet has enabled Royal Bank to keep investing in leading franchises while navigating an uncertain macro environment.
Royal Bank’s book value per share has registered a growth of 9% CAGR over the last decade. The management is expecting the bank’s EPS to grow at more than 7% over the medium term. It is also targeting to keep the dividend payout ratio in the reasonable 40%-50% range.
Royal Bank is expecting the pace of improvement in the economic recovery to be slow in early 2021 with Canadian GDP near 4.4%. Royal Bank continues to invest in technology to drive efficiencies and deliver a better client experience. It is also focusing on increasing client acquisitions across all key segments while deepening existing relationships.
The bank competes with other leading Canadian banks like TD Bank, Bank of Montreal, Scotiabank, Canadian Imperial Bank of Commerce, and National Bank. National Bank ranks amongst the six largest commercial banks in Canada, while CIBC caters to 11 million individual, small business, commercial, corporate and institutional clients in Canada, the U.S., and around the world.
Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.
|TSE:RY||RY||Royal Bank||Financial Services||Banks - Diversified||0.62||108.36||121.14||13.42||13.42||8.08||0.04||3.99||0.5347||4||4.32||0.1135||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:TD||TD||TD Bank||Financial Services||Banks - Diversified||0.63||77.14||109.63||11.74||11.74||6.57||0.04||4.10||0.4810||4||3.16||0.1310||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:BNS||BNS||Scotia Bank||Financial Services||Banks - Diversified||0.62||74.40||70.73||13.98||13.98||5.32||0.05||4.84||0.6767||4||3.60||0.1078||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:BMO||BMO||Bank of Montreal||Financial Services||Banks - Diversified||0.57||103.98||52.93||12.68||12.68||8.20||0.04||4.08||0.5171||4||4.24||0.0786||5||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:CM||CM||CIBC||Financial Services||Banks - Diversified||0.62||117.33||41.06||12.84||12.84||9.14||0.05||4.98||0.6389||4||5.84||0.0985||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:NA||NA||National Bank||Financial Services||Banks - Diversified||0.58||80.16||27.00||12.98||12.98||6.17||0.04||3.54||0.4603||4||2.84||0.1040||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:CWB||CWB||Canadian Western Bank||Financial Services||Banks - Regional||0.58||33.45||2.93||11.72||11.72||2.86||0.03||3.47||0.4056||4||1.16||0.0896||6||7||Tollbooth - Unregulated||NO||YES||YES||NO||Canada||1|
|TSE:LB||LB||Laurentian Bank||Financial Services||Banks - Regional||0.42||34.86||1.51||14.73||14.73||2.37||0.05||4.59||0.6751||4||1.60||0.0813||2||4||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
Royal Bank continues to grow its commercial market share through industry-specific credit strategies and is targeting a high-growth retirement segment and business succession planning for future growth.
The bank’s efforts to expand its portfolio with digitally enabled capabilities should also support customer growth. It has been witnessing client-driven volume growth and improved client activity lately. The bank is well-positioned to continue providing value-added service to its existing clients while attracting new clients with its market-leading capabilities across different segments.
Royal Bank’s industry-leading market share and strong balance sheet position it well for an economic recovery.