Thursday, December 30, 2010

Dividend Yield: Royal Bank of Canada (TSE:RY, NYSE:RY)

Royal Bank of Canada logoImage via WikipediaRoyal Bank (TSE:RY, NYSE:RY) is the largest bank in Canada and consequently the largest Canadian company in terms of market value. Unlike some of its competitors, it has seen a pull back from investors in the past months and has had more exposure to international markets. It owns businesses in the U.K., the U.S and other international markets.

Its earnings come from the following markets. Its dependence on the Canadian market is much lower than I expected. It can be viewed as a good or a bad thing depending on how you want to look at the world economies for the next few years.

  • 56% Canadian
  • 3% U.S.
  • 14% Wealth Management
  • 24% Capital Markets

Fact Sheet
  • Stock Ticker: RY on both the TSX and NYSE
  • Market Cap.: 74.24B$ (CDN$)
  • P/E: 15.04
  • EPS: 3.6$
  • Dividend Yield: 3.84%
  • 52-Week Low: 48.85$
  • 52-Week High: 62.89$
  • 52-Week Range: 23.08% as of writing.
Here is RY's 1 year stock graph. Outside of its peak, 55$ seem to be the high points for the year. At 52$, it could be a good entry point.



Dividend Growth
Royal Bank has increased their dividends 15 times in the past 11 years. For the past 3 years, their dividend has been fixed at 50 cents per quarter. So in a way, RY has increased their dividends 15 times in 8 years. That's nearly 2 times per year. In 2006, RY had a 2-for-1 stock split equivalent by giving a 1-for-1 stock dividend.

The payout ratio is decent and averages to 46% for the last 5 years. It's in line with the banking sector. The only exception to the rule is Toronto Dominion with an average of 41%. Otherwise, the other banks are near 46%. If Royal Bank can bring back their payout ratio below the average in the upcoming years, it should be in a decent position to increase its dividends but I am concerned that they may increase their dividend after the other banks.

Competitors
The major competitors to Royal Bank consist of the other Canadian banking institutions. Due to the Canadian banking rules being different, I have not included other international banks including the U.S. banks. I have also not included other financial institutions not in the consumer retail sector.

CompetitorsTickerPriceMarket Cap.Yield
Toronto DominionTD.TO$73.90$64.923.30%
Bank of Nova SotiaBNS.TO$57.11$59.563.43%
Bank of MontrealBMO.TO$57.29$32.464.89%
CIBCCM.TO$78.65$30.894.42%
National BankNA.TO$68.50$11.133.85%
Laurentian BankLB.TO$48.75$1.173.20%

Here is how the top 5 banks compared to each other during the year. Royal Bank was definitely the under performer with the Bank of Montreal taking a hit recently.



Thoughts
I expect Royal Bank to increase its dividend just like the other Canadian banks will. So far, 2 o the smallest banks have increased their dividends; namely National Bank (TSE:NA) and Laurentian Bank (TSE:LB). The larger banks have been on the acquisition path and buying cheap foreign financial assets while they are still cheap.

Full Disclosure: I do not own RY but I own BNS and BMO as of writing.

Readers: Any interest in Royal Bank?

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