Wednesday, January 15, 2014

Royal Bank of Canada 2

On my other blog I am today writing about Dividend Payment Cycles...continue...

I own this stock of Royal Bank of Canada (TSX-RY, NYSE-RY). In 1995 I bought this stock and this is the second bank stock that I have bought. Since buying this bank I have made a total return of 18.54% per year with 5.15% per year from dividends and 13.39% per year from capital gains. On my original purchase price I have a dividend yield of 36.9%.

Over the past year, insider trading was $19M of insider selling and $1M of insider buying for a net insider selling of $18M. There is some insider ownership with the CEO having shares worth some $51M and the Chairman having shares worth $2.3M. In 2013 outstanding shares were increased by 2.5M shares because of stock options. This number of shares is currently worth around $180.5M.

The 5 year low, median and high median Price/Earnings Ratios are 10.05, 16.09 and 18.04. The current P/E Ratio is 12.14 based on a stock price of $71.39 and 2014 earnings of $6.88. This stock test suggests that the stock price is reasonable.

I get a Graham Price of $63.51. The 10 year low, median and high median Price/Graham price Ratios are 1.08, 1.22 and 1.41. The current P/GP Ratio is 1.12 based on a stock price of $71.39. This stock test suggests that the stock price is reasonable.

I get a 10 year Price/Book Value per Share Ratio of 2.32. The current P/B Ratio is 2.34, based on a stock price of $71.39, a value almost the same. This stock test suggests that the stock price is reasonable.

The 5 year median dividend yield is 4.13% and the current dividend yield is 3.75% a value some 9% lower. What you really like to see is the current yield higher, but these yields are close so the stock test suggests that the stock price is reasonable, but towards to the high side of reasonable. The historical average dividend yield is 3.59% a value just 4.4% higher than the current dividend yield. The shows the same thing, that is that the stock price is reasonable.

An article in 4-Traders talks about the RBC giving all investors a $9.95 trade. Another initiative is setting up an on-line site call "Community" so small investors can talk to other small investors and ask them questions. An article in Financial Post talks about Canadian borrowers reaching the limit on what they can borrow. This is likely to slow loan growth this year.

In Forrester's report, RBC earned highest overall score in Canada. In July 2013, the blogger of Dividend Growth Investing and Retirement did an analysis of this bank.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. The consensus recommendation would be a Buy. The 12 month consensus stock price is $73.90. This implies a total return of 7.27% with 3.75% from dividends and 3.52% from capital gains.

I am certainly pleased with my investment in this bank and I will keep holding the shares that I have. I have too much of my investment in banks and too much in this bank to be buying anymore at this point. I think that the stock price is reasonable. See my spreadsheet at ry.htm.

This is the second of two parts. The first part was posted on Tuesday, January 14, 2014 and is available here.

Royal Bank of Canada (RY on TSX and NYSE) 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 RBC.

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 or StockTwits.

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