Friday, December 18, 2009

Royal Bank

The next bank I want to deal with is the Royal Bank (TSX-RY). I have invested in this bank also. I have been invested in this bank in 1995 and since that time, I have made a return of 19.5% per year. Canadian banks have been great investments. I have also have had two 2 for 1 stocks splits under this bank. I have felt for sometime that this is one of the best Canadian Banks.

The dividend comments I made on the TD Bank yesterday, also apply to Royal Bank. People do not expect any dividend increases on our banks until at least the end of 2010. The problem is not only that the banks want to strengthen their balance sheets; they are also concerned that our government may bring in new regulations. They want to see what, if any, new regulations that the government might impose before they commit to higher dividends. Royal Bank has also done great in dividend increases in the past. In the last 5 and 10 years, the dividend increases have been at 14.6% per year and 15.5% per year on average.

When you look at growth rates, the Royal Bank has done better than the TD Bank except for increase in Book Value over the last 5 years. It has done especially better in growth in Revenue and Earnings. Although these growth rates are not terrific, the Royal Bank has still done a lot better than the TD Bank.

The main spot for both banks that I do not like is the lack of growth or just any Operating Cash Flow. None of our banks are great at this. However, I must admit, that the Net Cash Flow for the banks are usually positive. Also, as with TD Bank, this bank has a better 5 year running average for the Return on Equity (ROE) than for 2009. However, the Royal Bank’s 9.7% ROE is not bad.

As for other banks, the Asset/Liability Ratio is low at 1.06, but it is in line with this ratio on other banks. The other thing is banks tend to have lots of debt. The leverage (or Asset/Book Value ratio) is 17.7 and this is high, but it is better than the 5 year average of 23.

I am happy with this stock and I intend to hold on to what I have. Another way to look at this stock is that, on my original investment, I am now making some 27.6% per year after 15 years. This is important for me as I live off my dividends.

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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