I own this stock of Royal Bank of Canada (TSX-RY, NYSE-RY). I bought this bank in 1995. My total return to the end of 2019 is 17.29% per year with 11.58% per year from capital gains and 5.71% from dividends. I have a yield of 57.9% on my original investment. This is why you buy dividend growth stocks.
Say I paid $10,000 for shares in 1995. I would have bought just over 1378 Shares, and I would have shares at the end of December 2019 valued at $141,608.17 and I would have received to the end of December 2019 $59,699.38 in dividends. This is after just over 24 years investing.
When I was updating my spreadsheet, I noticed dividend growth and total return are currently lower than they were previous. The dividend growth for the last two years was over 8% again. As a bank, they tend to raise their dividends twice in a year. The last increase was occurred last in 2019 and it was for just 2.9%. In the financial years ending in October 2018 and 2019, the increases were just over 4%.
It would also seem that for Canadian Banks, loan loss provisions are higher. See an article by Geoff Zochodne in the Financial Post. Jonathan Ratner in the Financial Post talks about changes to the accounting rules.
The dividend yield on this bank is in the moderate range (2% to 4% ranges). The current dividend yield is 4.06%. The 5, 10 and historical dividend yields are 3.95%, 3.92% and 3.95%. Currently the dividend growth is low (under 8%). See the chart below.
The Dividend Payout Ratios are fine. The DPR for EPS for 2019 is 46% with 5 year coverage at 45%. The DPR for CFPS is 41% with 5 year coverage at 40%. The DPR for Free Cash Flow for 2019 is 26% with 5 year coverage at 59%. (Note that currently I have getting FCF values from Wall Street Journal.)
Debt Ratios are fine. Since this is a bank, you look at Assets covering long term Liabilities. The Debt/Asset Ratio for 2019 is 0.70. I do calculate a Liquidity Ratio, but it is not an important ratio for banks. The Debt Ratio is 1.06. For banks this should be 1.04 or higher. Leverage is calculated differently for banks and RBC says has one of 4.3% which is probably a bit high.
The Total Return per year is shown below for years of 5 to 36 to the end of 2019. 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 chart below.
When looking at this data, be aware that we had a big bull market from 1982 to 2000.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 5.59% | 8.12% | 4.14% | 3.98% |
| 2009 | 10 | 3.61% | 10.49% | 6.07% | 4.42% |
| 2004 | 15 | 6.33% | 7.68% | 3.77% | 3.91% |
| 1999 | 20 | 7.58% | 12.26% | 7.29% | 4.97% |
| 1994 | 25 | 7.95% | 14.03% | 8.51% | 5.52% |
| 1989 | 30 | 6.96% | 14.47% | 8.75% | 5.72% |
| 1984 | 35 | 6.17% | 14.66% | 8.56% | 6.10% |
| 1983 | 36 | 6.00% | 12.93% | 7.74% | 5.19% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.51, 11.44 and 12.46. The corresponding 10 year ratios are 10.68, 11.76 and 12.80. The corresponding historical ratios are 10.29, 12.09 and 13.51. The current P/E Ratio is 11.32 based on a stock price of $103.55 ad 2020 EPS estimate of $9.15. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $105.82. The 10 year low, median, and high median Price/Graham Price Ratios are 0.92, 1.02 and 1.12. The current ratio is 0.98 based on a stock price of $103.55. 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 1.90 based on Book Value of $77,817M, Book Value per Share of $54.39 and a stock price of $103.55. The current ratio is 3.9% 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 3.95%. The current dividend yield is 4.06% based on dividends of $4.20 and a stock price of $103.55. The current dividend yield is 2.7% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median dividend yield is 3.92%. The current dividend yield at 4.06% is 3.5% above this yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 3.01. The current P/S Ratio is 3.25 based on 2020 Revenue estimate of $45,546M, Revenue per Share of $31.84 and a stock price of $103.55. The current ratio is 3.3% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is probably reasonable. The testing is showing the price both above and below the median, but not by much. The P/S Ratio is showing that it could be a bit high.
Is it a good company at a reasonable price? I think that this is a good bank to invest in. Most Canadian Banks are good investments. You generally get a moderate yield and moderate dividend growth. I think that the current price is probably reasonable.
When I look at analysts’ recommendations, I find Strong Buy (5), Buy (5), Hold (5), Underperform (1) and Sell (1). There is usually a big spread on banks, but seldom a Sell recommendation. The consensus would be a Buy. The 12 month stock price is $111.19. This implies a total return of 11.43% with 7.38% from capital gains and 4.06% from dividends.
See what analysts are saying on Stock Chase. Analysts do like this bank. Joey Frenette on Motley Fool thinks RBC is a safer bank play. A writer on Simply Wall Street says that 46% of this bank is owned by institutions. John Aiken on Bloomberg says not to expect much in dividend growth in Banks in 2020. Royal Bank is his least favourite because of its higher valuation. Andrew Button on Motley Fool says there is a sale on Royal Bank.
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 8, 2020 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks January 2020.... learn more on January 4, 2020 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.
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