Why Income Investors Should Consider RBC

Canadian banks hold a special place in the portfolio’s of myriad investors worldwide, given that they boast a century-long history of paying generous dividends. What’s more, the Royal of Bank of Canada (TSX: RY) (NYSE: RY), the leader of the “Big Five” in the Canadian banking climate, is no exception to this trend. Especially over the past few years, RBC has proven itself to be one of the finest dividend growth opportunities out there, and the dual-listed stock has just increased its dividend for the second time in 2017 by 4.6%, despite having already raised it by 4.8% back in February.


RBC released its third-quarter earnings at the end of last month (August 23rd), which were mostly in line with analysts expectations. As per the earnings report, the company reported net income of $2.8 billion. What’s more, although profit fell compared to Q3 2016, income was up 5% year-over-year, with income in the wealth management and insurance sectors climbing 25% and 56% respectively.

rbc shares

As the above data explicates, the bank’s Q3 earnings were positively received by the markets, with the stock edging higher heading into September. As such, RBC is currently trading only 2% below its 52-week high of $76.01, which leads many a spectator to question where in fact the company’s recent success lies. I would argue that RBC’s capitalization of the modern landscape of digital banking has a fair amount to do with it.


That is, banks are currently standing in fierce competition to appeal to millennials who bank in a very different way from previous generations. RBC has its finger on the trigger with regards to digital banking, announcing that it would become the first bank in Canada to offer personalized digital financial insights and an automated savings service through the RBC mobile app on August 28th. This business plan is designed to be an attractive option for millennials who, favouring automated services, are less willing to bank with the help of a conventional advisor. The rise of robot-advisors and direct brokerage services also demonstrates that young investors are looking to take control through online platforms rather than work directly with financial advisors or planners, a notion which RBC has made clear it will capitalize on in the near future.


What’s more, in terms of rewarding its investors, the bank has a steady history of increasing its dividend payouts. The most recent dividend hike announced in the third quarter brings RBC stock to $0.91 per share, representing a 3.91% dividend yield at the offering. So considering that the average dividend yield for the S&P500 currently sits at 1.93%, RBC’s 2x higher yield makes it a perfect option for income investors. As such, investors can feel good about adding RBC stock to their portfolios, due to its ever-growing dividend yield and promising long-term outlook driven by a market-leading digital transformation.

(Kathleen Craig, Research)

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