Opinions
Paul Harris, CFA
Royal Bank
RY-T
BUY
Apr 22, 2025
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.
Both have a very large domestic presence, which helps them in this environment. Both had very good numbers last quarter and are very good businesses. As expected, all banks increased credit provisions.
RY will benefit more from its large capital markets business. Volatility helps capital markets a lot; perhaps you won't get the M&A, but a lot of trading goes on with equity, debt, and other derivatives. It's global. Expectation in US of deregulation in financial services; if so, RY will benefit a lot more than NA.
NA is smaller and more focused in Quebec, though the CWB acquisition is changing that.