Monday, December 21, 2009

Royal Bank 2

On Friday I talked about the Royal Bank (TSX-RY) in which I have been invested in since 1995. Since that time, I have made a return of 19.5% per year. Another way I talked about how to look at this stock is that, on my original investment, I am now making some 27.6% per year on my original investment, after 15 years. This is important for me as I live off my dividends. Compare this to BMO, in which I have been invested in since 1983 and now make some 19.3% return on my initial investment. The BMO investment occurred 27 years ago. By this measure, Royal Bank has been a better investment.

When I look at Insider Buying and Insider Selling reports, I also find a lot of Insider Selling as I did for the TD Bank. Most of this also has to do with selling of options. Here again, the insiders have far more options than they do shares in the bank. However, the selling is not quite as bad as for TD Bank. Insider Selling is .11% of the stock’s market cap, compared with the TD, which has Insider Selling of .24% stock’s market cap. I know that both these figures are below 1%, but the amounts are substantial. Here the selling totals 85M. The Insider Buying is also higher for Royal, which is 7.3M compared to just less than 1M for the TD Bank.

When I look at ratios, the first one is on the P/E ratio. For this stock, I get a P/E of 12.7 for 2009. This is based on expected 2009 earnings. The sites using earnings of last 12 months get a P/E closer to 22. The 5 year average low for this stock is 11.4 and the 5 year average high is 16.8. My P/E is certainly closer to the low than the high. However, to signal a good price, you want a P/E less than the 5 year low.

For the Dividend Yield, I get a current one of 3.6% and the 5 year average is 3.7%. Here, a low price signal is a yield higher than the 5 year average. When I look at the Price/Book Value Ratio, I find that the current one is about 90% of the 10 year average. A good price signal is when the P/BV Ratio is 80% of the 10 year average. The last buy/sell signal I am looking at is the Graham Price. The current Graham Price is $50.30. The stock price is some 9% above this.

What all the above shows on price is that there is no strong buy signal, nor any strong sell signal either. The price is probably a reasonable one. The problem with a lot of the above is that most are based on expected earnings for 2009. The ones that are based on current values is the dividend yield and the P/BV and both these show a current reasonable price.

When I look at the analyst recommendations, I find them mostly at Strong Buy, Buy and Hold. I also found 1 Underperform recommendation. The consensus recommendation appears to be a Hold. Most analysts have a 12 month target price of $58 or $59. Because of this, they feel that there is not much room for stock price growth in the near future. (See my site for information on analyst ratings.)

When I look at the charts, I find that this stock has beaten the TSX and the Financial Sub-index for all periods from 6 months to 10 years. The further you go out the more it has beaten both indexes. The Financial Index has only been higher than the TSX from 10 year period and greater. The other thing to note is that for the last 5 and 10 years, this stocks total return includes dividends and dividends provided just over 4% of the total return.

I am happy with this stock. I do not intend to buy more for the simple reason it comprises too much of my portfolio. I have no plans to sell any either because it is not more than 10% of my portfolio. I have done well by this stock and I think the current price is relatively reasonable. When buying stock, what you want to look for are reasonable prices.

This is a bank. It provides personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. It operates in Canada, USA, Caribbean, and other places around the globe. Its web site is See my spreadsheet at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at

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