Monday, December 20, 2010

Royal Bank 2

This is a bank (TSX-RY) that I own. I bought this bank in 1995 and I have done well with it. On my original investment in 1995, I am receiving a yield of 27.5% in dividends. On this stock, I have made a return of 19.3% per year since I bought it in 1995. 3.5-4% of this return would be in dividend income. In 1995, I was getting a dividend each year of $.15 a share (there was a stock split in 2006). Today, the dividend is at $2.00 a share.

As with the other banks, there are massive amounts of insider selling in the insider trading reports. All the insiders, but the directors have far more stock options than shares and they are not keeping them. There is net insider selling of $44.1M, with selling at $46.5M. There is some insider buying, but extremely little compared with insider selling.

The 5 year median low P/E ratio is 11.8 and the 5 year median high P/E ratio is 17.1. I get a current P/E ratio of 12.1 based on earnings estimates for the year ending October 2011. Sites that base their current P/E on the last 12 months earnings get a higher P/E Ratio of 14.7. I think that the current P/E ratio is reasonable. When I look at the Graham price, I get a current one of $47.98. The stock price of $51.57 is just 7.5% higher. The average low Graham price versus the stock price is -3% and the average high Graham price versus the stock price is 34%. So the difference is towards the low end of this range.

I get a 10 year average Price/Book Value ratio of 2.50 and a current one of 2.15. This current one is 86% of the 10 year average and this also points to a reasonable price. The last thing for me to look at is the dividend yield. The dividend yield at 3.9% is just above the 5 year average of 3.7%. This stock also has a 10 year average high yield of 4.1% and a 10 year average low of 2.9%. The current yield is closer to the 10 year high, and this points also to a reasonable price.

When I look at analysts’ recommendations, they cover all types of Strong Buy, Buy, Hold, Underperform and Sell. There are very few analysts’ recommendations in the Underperform or Sell recommendations. Most of the recommendations are in the Hold position. The consensus is probably a Hold, but just on the edge of the Buy/Hold position. (See my site for information on analyst ratings.)

The 12 month price for those with a Hold position, give one of around $56 and those with a Buy around $62. A number of analysts’ with Hold recommendations pointed to the latest financial results being a disappointment. Some feel that the bank has great upside potential and little downside potential going forward. Others point to the great dividend yields that this bank (and all Canadian Banks) have currently.

I will continue to hold the shares I have in this bank. I will not be buying more bank stock as I have enough already.

The Royal Bank of Canada 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 here Royal Bank. See my spreadsheet at ry.htm.

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 for stocks followed and investment notes. Follow me on twitter.

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