Monday, January 7, 2019

Royal Bank of Canada

Sound bite for Twitter and StockTwits is: Dividend Growth Bank. Testing of the stock price shows that the price is reasonable and below the median. I doubt you will get a better price outside a bear market. See my spreadsheet on Royal Bank of Canada.

I own this stock of Royal Bank of Canada (TSX-RY, NYSE-RY). At the time I bought this stock it was on Mike Higgs' list of Canadian Dividend Growth Stocks and on the dividend lists I followed as were all the banks. In 1995 I bought this stock and this is the second bank stock that I have bought.

When I was updating my spreadsheet, I noticed how well I have done with this stock. My total return is 17.35% per year with 5.70% per year from dividends and 11.65% per year from capital gains. The yield on my original 1995 investment is 54% per year. However, past results do not tell you the future.

Our banks may not make out as well in the future. They did well in the past because they took over the other financial pillars of Trust Companies and Brokerage Firms and they are taking over Insurance now too. They are now expending by going international. It is hard to know how successful they will be in the long term in going international. This stock’s financial year ends in October each year.

Dividend yield is currently good with past yields being moderate. Dividend growth recently is low, but in the past it was was moderate. The current dividend yield is 4.18% with 5, 10 and historical yields at 3.69%, 3.92% and 3.92%. Banks tend to have more than one increase in dividends yearly. The last increase was in 2018 and was for 4.3%. The last two increases total 7.7%.

The Dividend Payout Ratio for EPS for 2018 Financial year was 44% with 5 year coverage at 45%. The DPR for CFPS for 2018 was 38% with 5 year coverage at 40%. I see no problem.

For Financials you do not compare debt to market cap but rather to covering assets. For this bank that ratio is good at 0.72. No analyst thinks that the Liquidity Ratio is important for banks. For Banks the Debt Ratio is good if at 1.04 or higher. This bank has a Debt Ratio of 1.06.

The Total Return per year is show below for years of 5 to 35 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

They are underperforming for the last 5 years compared to other years. The stock is down almost 9% in 2018.

Years Div. Gth Tot Ret Cap Gain Div.
5 7.27% 9.55% 5.52% 4.03%
10 6.96% 14.77% 9.98% 4.79%
15 9.46% 11.96% 7.80% 4.16%
20 11.19% 12.27% 8.36% 3.91%
25 10.98% 15.60% 10.87% 4.73%
30 9.26% 15.10% 10.46% 4.64%
35 8.95% 12.78% 9.22% 3.57%


The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.85, 12.09 and 12.92. The corresponding 10 year ratios are 10.68, 12.13 and 13.21. The corresponding historical ratios are 10.51, 12.27 and 13.93. The current P/E Ratio is 10.46 based on a stock price of $93.68 and 2019 EPS estimate of $8.53. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $99.04. The 10 year low, median, and high median Price/Graham Price Ratios are 0.92, 1.03 and 1.14. The current P/GP Ratio is 0.95 based on a stock price of $93.68. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 1.98. The current P/B Ratio is 1.83 based on Book Value of $73,552M, Book Value per Share of $51.11 and a stock price of $93.68. The current ratio is some 7.5% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get an historical median dividend yield of 3.92%. The current yield is 4.18% based on Dividends of $3.92 and a stock price of $93.68. The current yield is 6.8% above the historical median yield. This stock price testing suggests that the stock price is relatively reasonable and above the median.

The 10 year median Price/Sales (Revenue) Ratio is 3.14. The current P/S Rati is 3.08 based on 2019 Revenue estimate of $43,763M, Revenue per Share of $30.41 and a stock price of $93.68. The current ratio is 4.9% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and above the median.

The P/E Ratios for this stock is surprisingly consistent. This is generally not my favourite test. However, in all my testing I find the same answer that the stock price testing suggests that the stock price is relatively reasonable and above the median.

When I look at analysts’ recommendations, I find Strong Buy (4), Buy (7), Hold (3) and Underperform (2). The consensus would be a Buy. The 12 month stock price consensus is $111.79. This implies a total return of 23.52% with 4.18% from dividends and 19.33% from capital gains.

Emilia D'Anzica on Walk Me Blog talks about Royal Bank improving their customer service. Lakeland Staff Writer on Lakeland Observer says this bank is trading near its 52 week lows. Matt Scuffham of Reuters on the Financial Post says that it is harder for borrowers to switch lenders because of the new lending rules. Joey Frenette on Motley Fool thinks that it is a good time to buy this stock. See what analysts are saying about this stock on Stock Chase. They like this bank but one analyst says it is trading at a premium.

Royal Bank of Canada is one of the two largest banks in Canada. It is a diversified financial services company, offering personal and commercial banking, wealth-management services, insurance, corporate banking, and capital markets services. The bank is concentrated in Canada, with additional operations in the U.S. and other countries. Its web site is here Royal Bank of Canada.

The last stock I wrote about was about was Bank of Montreal (TSX-BMO, NYSE-BMO) ... learn more. The next stock I will write about will be Rogers Sugar Inc (TSX-RSI, OTC-RSGUF) ... learn more on January 9, 2019 around 5 pm. Tomorrow on my other blog I will write about Capital Compounders by Robin Speziale.... learn more on Tuesday, January 8, 2019 around 5 pm.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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