Like many of its competitors, the bank is now benefiting from recent acquisitions. It’s also sharing that increased profit with investors.
ROYAL BANK OF CANADA (Toronto symbol RY; www.rbc.com) continues to expand in the U.S. In November 2015, it paid $5.5 billion U.S. in cash and shares for Los Angeles-based City National Bank. That firm lends to both wealthy individuals and businesses in the entertainment, technology and health care industries.
The bank also sold its home and auto insurance business to Aviva Canada for a $235 million gain. Regulations prevent Royal from offering insurance through its branches. That limited its growth.
Without unusual items, Royal earned $2.7 billion in the three months ended July 31, 2016. That’s a 7.5% gain over $2.5 billion a year earlier. Per-share earnings rose just 3.6%, to $1.72 from $1.66, on more shares outstanding. Revenue jumped 16.2%, to $10.3 billion from $8.8 billion.
Earnings from Royal’s retail banking business (which supplied 50% of the total) rose 3.2% due to stronger loan volumes in Canada and higher fee-based income.
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Blue Chip Stocks: Bond-trading drives profit for securities trading
Profit from securities trading (24% of total earnings) rose 16.5% on higher bond-trading volumes and lower taxes.
The wealth management business (15%) reported 36.1% higher earnings due to the City National purchase. Insurance earnings (5%) fell 25.4%, mainly due to claims related to the Fort McMurray wildfires. Earnings from investor and treasury services (6%) fell 6.0%.
Royal set aside $318 million to cover potential bad loans in the latest quarter, up 17.8% from $270 million a year earlier.
The bank also raised its quarterly dividend by 2.5%, to $0.83 a share from $0.81. The new annual rate of $3.32 yields 4.2%. Royal should earn $6.78 a share in fiscal 2016, and the stock trades at 11.8 times that estimate.
Recommendation in The Successful Investor: BUY
For our views on getting full value from blue chip stocks, readBlue chip investing for easier profits.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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Changes to this Policy
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TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
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What really impresses me is the yield. I’m also pleasantly surprised by the limited exposure to oil sands. I thought the Big Five were on the hook for much more.