Opinions
Christine Poole
Royal Bank
RY-T
BUY
Jan 11, 2017
Stock price when the opinion was issued
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Main reason to invest today is its purchase of HSBC Canada a year or so ago. Analysts haven't yet fully priced in the synergies from that acquisition. It now has more of a global platform. More global capabilities means you attract more global investors and more recurring revenues.
Interprovincial barriers coming down in Canada and a higher infrastructure spend will promote growth in Canada, and the banks will benefit. Yield is 3.50%.
Extremely well-run and conservative. It has outperformed the S&P for decades. Is very bullish RY and Canadian banks. There's ongoing dividend and earnings growth. Is overcapitalized with lots of runway to deliver 8-10% earnings growth over time and therefore 10% annualized return for the next 5 years.
No red flags here. Always screens #1 or #2 in his work on NA banks. So consistent and efficient. Keeps doing the right things over and over. Cashflow to support semi-annual dividend increases has actually been declining the last 4 quarters. Payout ratio (his firm calculates it a bit differently) is 41%, very reasonable.
Long-term buy and hold. Get it in your portfolio and forget about it.
Like GS-N, it's the dominant bank in its country, and trades at a premium to peers, but deserves the premium because they've expanded into the lucrative wealth management area. They don't suffer problems in US retail banking like some peers; RY exited that decades ago. The forward PE of 13-14x is slightly higher than historic and this sector, but is justified through earnings growth.
The question asked the guest to compare the two with a view to buying one of them. She prefers Royal Bank right now. It just delivered record results and is growing at 10% year over year. TD has gone through a rough patch and is re-structuring which is eating into profits. She doesn't think Royal Bank will split.
Any potential stock split is irrelevant. The banks have been a wonderful thing in Canada, steady dividends that get raised frequently. Wouldn't sell and pay tax just to buy something else. Cooking on all cylinders. Best bank in Canada.
Know that all the banks have upped their non-Canadian exposure, so it's now about 50/50 Canada vs. outside Canada. RY has a very efficient US investment banking business, and is trying to expand retail.
Canadian Banks? They’ve had a very good 2016, but remember that 2015 was a negative year for banks. They were down about 11% on average because of concerns on energy, housing crisis, etc. Earnings were revised upwards and multiple expansions back to historical averages. She still likes them, because she is constructive on the Canadian and US economy. Her long-time favourites have been Royal Bank (RY-T) and Toronto Dominion (TD-T), and also owns Bank of Montréal (BMO-T). TD and Royal have exposure to the US with TD at about 25%-30%, and Royal at 22%. Thinks Royal’s is going to increase as they are now integrating City National. These both are trading at reasonable valuations.