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 16 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%).
Royal Bank has five business segments – personal & commercial banking (49% of earnings), capital markets (21%), wealth management (18%), insurance (7%) and investor & treasury services (5%). 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.Investment Data
- Opportunity Score: 62
- Ticker: TSE:RY
- Sector: Financial Services
- Industry: Banks
- Market Cap: 151.65B
- P/E: 12.20
- Dividend Yield: 3.86
- Dividend Payout Ratio: 47.11
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Royal Bank has a large set of diversified customers ranging from corporate and institutional to high net worth clients.
As a leading retail bank in Canada, Royal Bank is known for providing the best in class services and products to its broad base of clients. The bank offers a wide range of products and financial services to individual and business clients. It also provides U.S. cross-border banking through online channels for Canadian clients.
RBC holds strong market positions in its five business segments, including the largest full-service wealth advisory business. 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 by 17% annually. It also has an RBC Rewards program which is Canada’s leading loyalty program with 5 million active members, presently. The bank continues to foster strong alliances such as with WestJet and Petro-Canada to create more value for its customers.
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.
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. As Canada’s most valuable brand, Royal Bank also receives high credit ratings from reputed rating agencies.
Royal Bank maintains an average payout ratio of 48% and has returned over $35 billion in dividends over the last decade. Royal Bank is a Canadian Dividend Aristocrat with a solid track record of dividend growth. It last raised its dividend payout by more than 4% 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 is targeting to increase its client base up to three times 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.
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 and deposits and also grew its fee-based assets by $16 billion y/y last year. The solid GDP growth in Canada and active U.S. business investment act as prominent tailwinds for Royal Bank and should support the bank’s dividend growth streak in the future.
The bank competes with other leading Canadian banks like TD Bank TSE:TD, Bank of Montreal TSE:BMO, Scotiabank TSE:BNS, Canadian Imperial Bank of Commerce TSE:CM and National Bank TSE:NA. National Bank ranks amongst 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.
|RY||Royal Bank||Financial Services||Banks||62||105.69||151.65||12.20||11.69||8.66||3.86||47.11||4||4.08||10.14||NO||NO||YES||NO||1|
|TD||TD Bank||Financial Services||Banks||63||77.65||142.05||12.52||11.32||6.20||3.81||47.74||4||2.96||12.07||NO||NO||YES||NO||1|
|BNS||Scotia Bank||Financial Services||Banks||76||70.98||85.78||10.47||9.94||6.78||4.90||51.33||4||3.48||10.40||NO||NO||YES||NO||1|
|BMO||Bank of Montreal||Financial Services||Banks||57||100.88||64.44||10.68||10.49||9.45||4.08||43.60||4||4.12||7.13||NO||NO||YES||NO||1|
|NA||National Bank||Financial Services||Banks||69||63.31||21.22||10.38||10.15||6.10||4.30||44.59||4||2.72||10.45||NO||NO||YES||NO||1|
|CWB||Canadian Western Bank||Financial Services||Banks||71||29.85||2.60||10.33||9.43||2.89||3.62||37.37||4||1.08||8.77||NO||NO||YES||NO||1|
|LB||Laurentian Bank||Financial Services||Banks||62||45.36||1.92||10.83||10.30||4.19||5.82||63.01||4||2.64||10.73||NO||YES||YES||NO||1|
|FN||First National Financial Corporation||Financial Services||Banks||65||31.31||1.88||12.42||11.50||2.52||6.07||75.38||12||1.90||9.22||NO||NO||NO||NO||1|
|EQB||Equitable Group Inc.||Financial Services||Banks||62||73.02||1.22||7.44||6.29||9.81||1.70||12.64||4||1.24||9.70||NO||NO||YES||NO||1|
World class client experience, strong brand reputation, and strategic technology initiatives should drive market share gains and top-line growth. As one of the top 15 most valued banks globally, Royal Bank benefits from its diversified business model with leading client franchises. The bank is leading the way in digital sales and marketing to drive customer growth. It is favorably positioned to tap market share gains on the back of strong economic growth in Canada and the US.
Royal Bank is a core holding in both accumulation and retirement years. Decent growth for the accumulation years and a healthy dividend with dividend growth to beat inflation in the retirement years.
What about the doom and gloom debt and household situation? Just think about it, if there is a doom, your banking rates will go up. Sure there may be a bump in the road, which means a buy opportunity, but the bank will find a way to bridge the gap.
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.