Monday, December 19, 2011

Royal Bank

First, I want to say I was wrong about one thing on the Bank of Montreal. That was what return my stock was earning after 29 years. On Thursday I had said that on my original stock price, I am making a 19.3% return on Dividends. I had forgotten the split in stock in 2001, so what I am making on my original stock price is a 39% return on dividends.

My return per year at 16% per year was correct as I have used Quicken to determine this and Quicken took the split into account. I had originally bought this stock in 1983 and then using my dividends and extra money in the stock reinvestment plan (DRIP) added to my shares until August 1987. My purchase price is what I paid from 1983 to 1987 divided by the number of shares at that time and then the 2001 split.

Next, on to the Royal Bank (TSX-RY, NYSE-RY), a stock I also own and the one I want to talk about today. I bought this bank in October 1995. To date, I have made a return of 17.9% per year. Of this total return 5.56% is attributed to dividends. So some 31% of my return is accounted for by dividends. On my original investment, I am making a return of 29.75%.

Over the past 5 and 10 years, the returns have not been as good. The 5 and 10 year total returns on this stock are 3.2% and 11.9% per year. Of this return around 4% is attributed to dividends. Do not forget that banks have been hit hard by the latest bear market and dividend increases have been below the normal. I expect that our Canadian banks will recover, but it may take some time.

The best growth rates for this stock are dividends. Over the past 5 and 10 years dividends have grown at the rate of 8.9% and 11.7% per year, respectively. Dividends were not increased between 2008 and 2010. When they were finally increased in2011, the increase was for 8%. The 5 year median Dividend Payout Ratios for earnings and cash flow were 60% and 25%. They were bit higher in 2011 and are expected to be a bit lower in 2012 than the 5 year median ratios.

The next best growth rates are for Book Value, which over the past 5 and 10 years has grown by 9.3% and 7.9% per year respectively. Revenues have only grown at 3.4% and 4.8% per year over past 5 and 10 years. Cash flow has only grown at 0% and 4.8% per year over the past 5 and 10 years. Earnings have gone down by 2% per year over the past 5 years and have grown at the rate of 6% per year over the past 10 years.

Return on Equity has always been quite good. The ROE for the financial year ending in October 2011 was 13.2%. The 5 year median ROE is better at 15.3%.

I do not look at the Liquidity Ratio for banks as it does not really apply. The Asset/Liability Ratio is low at 1.06, but this is typical for a bank. The Leverage and Debt/Equity Ratios might appear high at 20.37 and 19.24, but these are also typical for a bank. They are also better than the 10 year medians of 24.48 and 23.44, respectively.

I have done very well with this stock over the long term and expect that this will continue. Over the short term, this bank, as all our banks, is not growing much. However, it was a good indicator that this bank restarted dividend increases in 2011.

Royal Bank of Canada and its subsidiaries operate under the master brand name RBC. They are one of Canada's largest banks as measured by assets and market capitalization, and are among the largest banks in the world, based on market capitalization. They provide diversified financial services companies, and provide personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. They have personal, business, public sector and institutional clients through offices in Canada, the U.S. and 56 other countries. 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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