Is it a good company at a reasonable price? I do like Canadian banks. I have done well with them. They grow their dividends. The stock price seems reasonable.
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 that I have own this stock for 27 years and that I have made a total return of 16.94% per year with 11.11% from capital gains and 5.86% from dividends. I only made one purchase of stocks for this bank and that was October 27, 1995.
If you had invested in this company in December 2012, for $1,017.96 you would have bought 17 shares at $59.88 per share. In December 2022, after 10 years you would have received $610.30 in dividends. The stock would be worth $2,164.10. Your total return would have been $2,774.40.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $59.88 | $1,017.96 | 17 | 10 | $610.30 | $2,164.10 | $2,774.40 |
If you had invested in this company in December 1992, for $1,002.64 you would have bought 166 shares at $6.04 per share. In December 2022, after 30 years you would have received $9,446.23 in dividends. The stock would be worth $21,131.80. Your total return would have been $30,578.03.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $6.04 | $1,002.64 | 166 | 30 | $9,446.23 | $21,131.80 | $30,578.03 |
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.05%. The 5, 10 and historical median dividend yields are also moderate at 3.82%, 387% and 3.93%. The dividend growth for the last 5 years is 7.4% per year. The last dividend increase was in 2022 and it was for 3.13%. However, this bank increases their dividends more than once a year and between 2022 and 2023 the dividends have increase by 10.9%.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2022 is 43% with 5 year coverage at 45%. The DPR for Adjusted Earnings per Share (AEPS) for 2022 is 43% and with 5 year coverage at 45%. The DPR for Cash Flow per Share (CFPS) for 2022 I s 35% with 5 year coverage at 38%. The DPR for Free Cash Flow for 2022 is 36% with 5 year coverage at 13%. However, there is no agreement on what the FCF is for 2022.
Debt Ratios are fine. Because this is a financial, I am looking at Long Term Debt/Asset Coverage Ratio and for 2022 it is good at 0.74. The Liquidity Ratio is not important for banks, but I calculate it to be 5.15. The Debt Ratio is 1.06 and this is fine for a bank.
The Total Return per year is shown below for years of 5 to 39 to the end of 2022. 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.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2017 | 5 | 7.37% | 8.14% | 4.40% | 3.75% |
| 2012 | 10 | 7.94% | 12.03% | 7.83% | 4.19% |
| 2007 | 15 | 6.69% | 10.09% | 6.32% | 3.77% |
| 2002 | 20 | 9.50% | 11.84% | 7.80% | 4.04% |
| 1997 | 25 | 10.45% | 11.75% | 8.01% | 3.73% |
| 1992 | 30 | 10.16% | 15.71% | 10.69% | 5.02% |
| 1987 | 35 | 8.98% | 16.26% | 10.79% | 5.47% |
| 1983 | 39 | 6.31% | 13.21% | 9.08% | 4.13% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 10.31, 11.61 and 12.92. The corresponding 10 year ratios are 10.41, 11.53 and 12.80. The corresponding historical ratios are 10.17, 11.85 and 13.50. The current P/E Ratio is 11.33 based on a stock price of $130.35 and EPS estimate for 2023 of $11.50. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I also have Adjusted Earnings per Share (AEPS) Ratios. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 10.55, 11.81 and 12.87. The corresponding 10 year ratios are 10.51, 11.60 and 12.78. The current P/AEPS Ratio is 11.03 based on a stock price of $130.35 and AEPS estimate for 2023 of $11.82. The current ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $138.26. The 10-year low, median, and high median Price/Graham Price Ratios are 0.89, 0.99 and 1.10. The current P/GP Ratio is 0.94 based on a stock price of $130.35. The current ratio is between the low and median ratios of the 10 year median ratios. 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 1.89. The current P/B Ratio is 1.76 based on a Book Value of $102,367M, Book Value per Share of $73.88 and a stock price of $130.35. The current ratio is 7% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I also have a Book Value per Share estimate for 2023 of $79.90. This implies a Book Value of $110,709M and a ratio of 1.63. This ratio is 14% below the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 5.89. The current P/CF Ratio is 8.23 based on Cash Flow for the last 12 months of $21,942M, Cash Flow per Share of $15.84 and a stock price of $130.35. The current ratio is 40% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. However, for banks, the Cash Flow ratio is not generally used for testing.
I get an historical median dividend yield of 3.93%. The current dividend yield is 4.05% based on a stock price of $130.35 and Dividends of $5.28. The current dividend yield is 3.1% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 3.87%. The current dividend yield is 4.05% based on a stock price of $130.35 and Dividends of $5.28. The current dividend yield is 4.6% 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 Price/Sales (Revenue) Ratio is 3.17. The current P/S Ratio is 3.37 based on Revenue estimate for 2023 of $53.656M, Revenue per Share of $38.72 and a stock price of $130.35. The current ratio is 6% 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. Both the dividend yield test show this. The P/S Ratio tests says reasonable but above the median. Most of the other tests, as the dividend yield tests, say the stock price is reasonable and below the median.
When I look at analysts’ recommendations, I find Strong Buy (4), Buy (8), Hold (4) and Underperform (1). The consensus 12 month stock price of $143.09. This implies a total return of 13.82% with 9.77% from Capital Gains and 4.05% from dividend based on a current stock price of $130.35.
Paul Harris on Stock Chase gives a Hold recommendation on the Royal Bank. His comments are: "He still owns. Banking industry is in very good shape in this country. Great dividend yield, trading at reasonable book value. Trouble is that net interest income is being offset by investment banking and such that are doing poorly. Longer term, will do well. Lots of capital to increase dividends or buy back shares. He is comfortable owning at these levels. May have seen a bit of weakness due to the HSBC purchase. " See Stock Chase.
Analyst on Stock Chase like this company. Stock Chase gives this stock 5 stars out of 5. It is on the Money Sense list with a rating of B. Andrew Walker on Motley Fool thinks if you want reliable dividends and decent capital gains you should consider this bank. Andrew Button on Motley Fool thinks this bank is a good one for passive income. The banks talks about their 2022 results on Newswire. Simply Wall Street via Yahoo Finance talk about this stock. Simply Wall Street gives this stock 4 stars out of 5 and list no risk checks.
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 Monday, January 9, 2023 around 5 pm.
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