Friday, January 15, 2016

Royal Bank of Canada

Sound bite for Twitter and StockTwits is: Cheap to reasonable. I do not understand analysts' recommendations on banks currently which range from Strong Buy to Underperform. You buy good stocks when cheap or below the historical median values. Yes, we have economic problems at present so this will affect banks. FinTech will probably also affect banks in the future, but if everything was rosy then banks stock prices would be high and it would not be time to buy. See my spreadsheet on Royal Bank of Canada.

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. At that time this stock was on Mike Higgs' list of Canadian Dividend Growth Stocks and on the dividend lists I followed as were all the banks.

Currently the dividend is good with a moderate growth. Usually this dividend is also moderate (below 4% I think is moderate). The current dividend yield is 4.57% based on a stock price of $69.15. The 5 year median dividend yield is 3.92%.

This bank held their dividend level for 3 years from 2008 to 2010 inclusive. The 5 and 10 year dividend growth is 8.7% and 10% per year over the past 5 and 10 years. This bank also tends to increase dividends twice a year. The last dividend yield was late in 2015 and was for 2.6%.

They can afford their current dividends. The Dividend Payout Ratio for EPS for 2015 was 45% and it has a 5 year median of 46%. The DPR for CFPS for 2015 was 39% and the 5 year median was also 39%.

I bought this stock some 20 years ago and the dividend yield I am earning on my original stock price is 43.5%. My original cost was $7.26 per share. (There have been two stocks splits since I bought this stock.) I have received some $28.76 per share so far in dividends.

If you had bought this stock 5, 10 or 15 years ago you would be earning 5.95%, 6.84% or 13.33% on your original stock cost if you paid a median price. However, stocks can be over or under priced in any years. If you look at the 10 year median dividend yield for this stock held 5, 10 or 15 years, the yield earned on the original cost would be 5.62%, 9.69% or 22.55%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.51, 11.44 and 12.68. These are lower than the corresponding 10 year ratios of 11.44, 13.03 and 14.39. The current P/E Ratio is 10.11 based on a stock price of $69.15 and 2016 EPS estimate of $6.84. However you look at this, this testing says that the bank is cheap.

Testing against the dividend yield says it is reasonable. The current dividend yield at 4.57% is some 16.6% lower than the historical median dividend yield of 3.92%.

By the Graham Price, the stock is cheap. I get a Graham price of $77.99 and the stock at $69.15 has a Price/Graham Price Ratio of 0.89.

When I look at analysts' recommendations I find Strong Buy, Buy, Hold and Underperform recommendations. The consensus recommendation is a Buy. The 12 month consensus stock price is $82.63. This implies a total return of 24.06% with 19.49% from capital gains and 4.57% from dividends on a stock price of $69.15.

If you buy for the long term, you buy when stocks are relatively cheap. Who knows if the 12 month consensus price is right or not? A lot of people tend to disregard this price. However, if you buy long term, buy when stocks are relatively cheap.

An article in the Financial Post has CEOs of Canada's bank talk about how problems in Alberta is affecting them and the rest of Canada. Most of the comments are quite positive. Ryan Vanzo of Motley Fool is positive about this bank. Analysts at Stock Chase make comments on this bank.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and 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 Royal Bank of Canada.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.


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  2. Well for the long term investor like my father in law this has proven to be a great stock and if you do not need the income and reinvest it has been very fruitful So yes he held it for 50 years and reinvested. His children are very happy about this and we are hoping to buy more when the stock splits.