Royal Bank of Canada (TSE:RY) Dividend & Stock Analysis

WRITTEN BY Dan Kent | UPDATED ON: October 10, 2020

Royal Bank dividend

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Royal Bank dividend


The Royal Bank of Canada (TSE:RY) has been around for a long time. In fact, the company has been named Canada’s most valuable brand 5 years running.

If you ask a Canadian to tell you which Canadian bank comes to mind first, there’s a good chance it will be Royal Bank. As such, it’s developed a wide economic moat as a company, and is one of the best Canadian dividend stocks to invest in now, and for the foreseeable future.

Things have changed drastically because of COVID-19, and a lot of investors are wondering about the long-term stability of Royal Bank of Canada’s stock, most importantly the safety of RBC’s dividend. In this article, I plan to tackle both, and see if you should be buying the Canadian stock today.

Royal Bank of Canada (TSE:RY) dividend and stock analysis

Royal Bank is a global enterprise that has operations in both Canada and the United States, along with 40 other countries. In fact, Scotiabank was once named “Canada’s International Bank”, but that title has since been lost to RBC.

Out of all the Canadian major banks, Royal Bank arguably has the widest product base as it serves investors through its capital market segment, investment clients through its wealth management segment, and both personal and business clients through their respective segments.

At the time of writing, the company is Canada’s second largest in terms of market capitalization, second to only the high-flying Canadian growth stock, Shopify. Which to most investors doesn’t make much sense, considering that Royal Bank paid out more in dividends alone than Shopify had in total revenue during fiscal 2019.

Regardless, the company is the poster-boy for a blue-chip dividend stock and employs over 83,000 employees around the globe.

People buy Canadian stocks in the banking sectordue to the stability, barriers to entry, and strict regulatory requirements of the sector. So, how safe is Royal Bank’s dividend? Lets have a look.

Taking a look at RBC’s dividend compared to the other banks

At the time of writing, the Royal Bank currently has a dividend yield of around 4.43%. In terms of Canadian bank stocks, this is actually the lowest yield you’ll find.

Unfortunately, this has caused a lot of investors to look beyond Royal Bank to other Canadian banks. Which don’t get me wrong, is not a detrimental choice. I own most all of the Canadian banks (except for CIBC).

The issue lies in the fact that investors are, in my opinion, passing up on one of the best stocks in the country to chase higher yielding stocks.

In order for a stocks yield to go up, what has to change?

Well, either a dividend increase, which won’t be happening in fiscal 2020 for Royal Bank or likely any other financial stock, or a dip in price. Lets take a look at the chart below.

TSE:RY Vs Other Canadian Bank Yields

As we can see, Royal Bank’s dividend yield, along with every other Big 5 Canadian bank spiked during the COVID-19 stock market crash in March. Now that the markets have somewhat settled, you can tell which Canadian banks continue to underperform in terms of recovery.

This is why a lot of investors are currently drawn towards bank stocks like Bank of Montreal (TSE:BMO) or The Bank of Nova Scotia. However, it’s important to keep in mind that these banks, although unlikely, are not immune to a dividend cut or stalling dividend growth.


Charts provided by StockRover. Check out Stockrover Here!


Canadian Bank Stock Payout Ratios

In the chart above, you’ll see the Canadian banks historical payout ratios over the last year. We can see Royal Bank’s payout ratio spiked during the COVID-19 market crash in 2020 before settling back into a healthy 49.09% range in the latter half of 2020.

Why the spike in Royal Bank’s payout ratio and all other Canadian banks? Well, it primarily had to do with the banks provisions for credit losses, or PCL’s.

PCL’s are money a bank has to set aside for loans it expects to go unpaid. Royal Bank would also have been required to deduct these PCL’s from its profits.

And as we all know, the dividend payout ratio is calculated using earnings. However, while PCL’s were extremely high the first quarter of 2020, the Royal bank reported only $675 million in PCL’s in the second quarter of 2020, significantly lower than the capital it set aside the quarter prior. As a result, its payout ratio has dropped drastically.

In fact, Royal Bank’s dividend payout ratio remains relatively untouched when looking at it prior to the COVID-19 pandemic, which is astonishing considering this is a financial company operating in the age of mortgage deferrals and unemployment levels not witnessed since the great depression.

In my opinion, Royal Bank’s dividend is the safest out of all the Canadian bank stocks, due to its low payout ratio and for other reasons I’m going to explain next.

It’s 8 year dividend growth streak will inevitably come to an end in 2020 due to restrictions by the Canadian Government on financial institutions and dividend growth due to the pandemic, but I am actually confident enough in saying if those restrictions weren’t in place, the company may have still raised.

RBC’s global exposure has boosted valuations and future outlooks

The fact that the Royal Bank of Canada is exposed not only to North American countries but 4o others around the world is one of the primary reasons it has been able to outperform the other Canadian banks and the TSX Index as a whole.

This level of international diversity has allowed the company to be exposed to a variety of economies at different stages of recovery.

It’s no wonder the bank reported a decrease in net income of only 2% and a decrease in earnings per share of only 1% during the peak of a global pandemic and economic disaster. It is a performance like this that leaves Royal Bank trading at the richest valuation when it comes to the 5 major banks.

TSE:RY Royal Bank Price to Earnings Vs Other Banks

Market Cap: $134.20 billion
Forward P/E: 12.51
Yield: 4.58%
Dividend Growth Streak: 9 years
Payout Ratio (Earnings): 54.54%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 8.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

When looking at the company on a price to earnings basis, Royal Bank is the most expensive it’s been in two years. However, I wouldn’t let that deter you from grabbing this Canadian bank today.

In the case of a second wave and a second shutdown here in Canada, banks like CIBC (TSE:CM) and Toronto Dominion Bank (TSE:TD) will struggle due to heavy exposure to North American economies. A bank like Royal Bank of Canada will hurt here at home, but will be able to continue to generate strong revenues in other parts of the globe.

Overall, Royal Bank’s dividend is safe, and it’s a bank stock you should consider owning

In fiscal 2019, The Royal Bank of Canada profited approximately $416 every second. Yes, you read that right. That isn’t total revenue, that’s profit.

The company generates a significant amount of cash flow, which will allow it to preserve liquidity and maintain the dividend. Once restrictions are lifted on Canadian banks when it comes to dividend growth, I’d expect Royal Bank of Canada to be one of the first in line to raise the dividend.

I also expect the company to outperform all of the other major banks in the next few years as the world slowly recovers from COVID-19. This bodes well for the company’s share price as well as its dividend.

The stock is one of the largest holdings in my portfolio, and will continue to be moving forward.