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 61% of revenues, followed by the US (23%) and other countries (16%). It operates 35 offices in 23 US states.
Royal Bank has five business segments – personal & commercial banking (49% of earnings), capital markets (21%), wealth management (20%), insurance (6%) and investor & treasury services (4%). The bank maintains a good balance of assets having nearly 50% retail and 50% institutional assets. The bank 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: 67
- Ticker: TSE:RY
- Sector: Financial Services
- Industry: Banks - Diversified
- Market Cap: 102.98B
- P/E: 12.27
- Dividend Yield: 4.52%
- Payout Ratio (Earnings): 55.53%
- 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
Royal Bank is using its extensive portfolio of products and digitally-enabled services to cross-sell to existing as well as attracting new clients. The bank’s active digital user base has grown to 7 million users. Royal Bank is growing 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. Its RBC Rewards program is Canada’s leading loyalty program with more than 5 million active members.
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.
Royal Bank continues to build its sales capacity adding over 300 client facing experts in its retail bank over the last year. The bank is already experiencing strong client-driven revenue growth in personal & commercial banking and insurance. 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 and is on track to launch RBC’s next-generation delivery platform, a multi-cloud strategy that is expected to help bring its products more quickly to the market. It also teamed up with Microsoft to launch RBC Go Digital this year.
Royal Bank’s revenue increased 8% YoY, due to higher net interest income and an increase in insurance premiums, investment and fee income. AUM also increased by 14% compared to last year. A large asset base, 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. Canadian banking benefited from strong volume growth across both gross loans and acceptances and average deposits.
Royal Bank maintains an average payout ratio of 46% and has returned over $35 billion in dividends over the last decade. It returned 6.9 billion in dividends and buybacks 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 nearly 3% and also has a yield of 4% presently. The bank has grown its dividends at more than 8% CAGR over the last five years. 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.
The bank has returned more than 50% of its 2019 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 added nearly 300,000 net new Canadian Banking clients this year. The bank is targeting to increase its client base to 2.5 million by 2023 and increase its efficiency level to 40% by 2021. The management is expecting the bank’s annual earnings to grow at 7%-10% over the medium term. It is also targeting to keep the dividend payout ratio in the reasonable 40%-50% range. Given lower interest rates and expected interest rate cuts the bank is focusing on driving efficiencies and managing costs. Net income increased by 4% YoY in the last year driven by strong performance in Personal & Commercial Banking and Wealth Management, and Insurance. It also recorded a gain on the sale of its private debt business of BlueBay of $134 million (after-tax) during the year.
Strong investment in digital initiatives to drive client growth, solid customer focus, and a large footprint have helped Royal Bank to consistently deliver solid results. The bank is in a good position to drive significant volume growth in its retail business on the back of strong employment and resilient economic growth. Royal Bank has been successfully delivering growth in business loans, deposits, and fee-based assets. It should continue to benefit from its higher average fee-based client assets and leverage its scale to grow market share. Solid economic conditions in core North American geographies, unemployment near multi-decade lows and continued resilience in the Canadian manufacturing sector are strong tailwinds for the bank and should support the bank’s dividend growth streak in the future.
The bank competes with other leading Canadian banks like TD Bank, Bank of Montreal, Scotia Bank, CIBC 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||0.67||95.47||102.98||12.27||12.27||7.78||0.05||4.52||0.5553||4||4.32||0.1189||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:TD||TD||TD Bank||Financial Services||Banks - Diversified||0.68||62.08||85.14||12.03||12.03||5.16||0.05||5.09||0.6124||4||3.16||0.1410||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:BNS||BNS||Scotia Bank||Financial Services||Banks - Diversified||0.74||55.15||50.32||9.75||9.75||5.66||0.07||6.53||0.6360||4||3.60||0.1247||6||8||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:BMO||BMO||Bank of Montreal||Financial Services||Banks - Diversified||0.65||80.23||39.01||11.53||11.53||6.96||0.05||5.28||0.6092||4||4.24||0.0907||5||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:CM||CM||CIBC||Financial Services||Banks - Diversified||0.69||101.96||34.30||11.86||11.86||8.60||0.06||5.73||0.6791||4||5.84||0.1060||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:NA||NA||National Bank||Financial Services||Banks - Diversified||0.65||69.57||23.36||11.58||11.58||6.01||0.04||4.08||0.4725||4||2.84||0.1094||6||7||Tollbooth - Unregulated||NO||NO||YES||NO||Canada||1|
|TSE:CWB||CWB||Canadian Western Bank||Financial Services||Banks - Regional||0.66||27.21||2.37||9.39||9.39||2.90||0.04||4.26||0.4000||4||1.16||0.0975||6||7||Tollbooth - Unregulated||NO||YES||YES||NO||Canada||1|
|TSE:LB||LB||Laurentian Bank||Financial Services||Banks - Regional||0.47||28.63||1.23||11.57||11.57||2.47||0.06||5.59||0.6478||4||1.60||0.0913||2||5||Tollbooth - Unregulated||NO||NO||NO||NO||Canada||1|
Growing geopolitical risk and trade tensions have led to downward trends in global interest rates and risks to the outlook. However, Royal Bank’s world-class client experience, strong brand reputation, and strategic technology initiatives should drive market share gains and top-line growth. The bank’s efforts to expand its portfolio with digitally enabled capabilities should also support future customer growth. Royal Bank’s core retail businesses continue to deliver strong results driven by its diversified business model. 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.
RY definitely outperforms the TSX and could keep up with the S&P 500 at times. That makes it a viable option for a Canadian portfolio. Considering RY is considered a core portfolio holdings for the usual Canadian investor, that’s not news but confirmation that it can belong in your portfolio.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.