The Royal Bank of Canada Stock Analysis

The Royal Bank of Canada (RY) released Q2 2019 results May 23, 2019. Despite reasonably solid results the share price pulled back slightly.

Based on RY's current valuation and my long-term positive outlook on the company I have acquired additional shares for what is already one of my top 10 holdings.

Summary

  • RY released Q2 2019 result May 23rd with adjusted diluted EPS narrowly exceeding analysts’ expectations.
  • RY has a well diversified business model and maintains a strong Basel III Common Equity Tier 1 (CET1) ratio.
  • Although RY is already one of my Top 10 holdings I have acquired additional shares for the FFJ Portfolio and for undisclosed accounts following the release of Q2 2019 results.

Introduction

In December 2018 I published a series of articles on the 5 major Canadian financial institutions in which I looked at Canada’s financial institution landscape, FY2018 results, FY2019 guidance, and valuation. I concluded each article with disclosure as to whether I would / would not be adding to my position.

Fast forward 6 months and the major Canadian financial institutions are in the midst of releasing their semi-annual results for FY2019. While a couple of the banks have yet to release their results it is clear from the semi-annual results released to date that some banks are far outperforming others.

In the first article of this series I looked at The Canadian Imperial Bank of Commerce (CM). On May 22nd, CM reported weaker performance in its core domestic retail banking unit which contributed to the weaker than projected Q2 analyst expectations.

While the results are somewhat disappointing, I hold shares in the 5 major Canadian financial institutions for the long-term. I, therefore, do not get concerned when a bank stumbles and the share price takes a hit. I look upon weakness as a buying opportunity which is why I have acquired additional CM shares for the FFJ Portfolio and for undisclosed accounts.

On May 23rd, The Royal Bank of Canada (RY) released semi-annual results which narrowly beat Q2 profit estimates amid growth in most of its major divisions, including its core domestic unit. Analysts, on average, expected $2.21 per share but RY reported $2.23 on an adjusted diluted per share basis.

Q2 total net income rose 6% YoY to $3.23B with profit from Canadian banking rising 2% YoY to $1.46B.

Overall credit quality improved with provisions for loan losses falling to $0.426B from $0.514B in Q1. RY, however, set aside more money for loans that could go bad in its core P&C business.

While results were pretty much in line with analyst expectations, RY’s shares suffered a mild pullback following the release of Q2 results.

Although I do expect long-term capital gains growth from my investment in the major Canadian financial institutions, dividend income generated from these holdings is my primary reason for investing in these banks.

In this article I look at RY’s valuation and dividend yield based on my expectation in dividend growth over the next 4 quarters and disclose whether I have acquired additional RY shares following the release of Q2 results.

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I hope you enjoyed this post and I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to charles@financialfreedomisajourney.com.

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I am long CM and RY.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.