Royal Bank of Canada Misses 1st Quarter Estimates; Hikes Dividend
Royal Bank of Canada (NYSE: RY – $49.39) reported a quarterly profit that missed market estimates, hurt by weakness in its insurance and capital markets businesses. But Canada’s second largest bank by assets, raised its quarterly dividend. Net income for the first quarter ended Jan. 31 was C$2.45 billion, and adjusted earnings per share equaled C$1.64, compared with C$1.68 per share, a year earlier. Revenues for the first quarter totaled C$9.36 billion vs. C$9.64 billion last year. Analysts on average had expected C$1.67 a share earnings and revenue of C$9.64 billion. The results reflected higher earnings in Wealth Management which benefited from the inclusion of Royal Bank’s acquisition of City National Bank, which closed on November 2, 2015, which contributed an adjusted C$107 million to the bottom line. Results also reflected record earnings in Personal & Commercial Banking and higher earnings in Investor & Treasury Services offset by lower results in Insurance and Capital Markets. The bank also said it increased its credit loss provision by 7 basis points from the prior year, reflecting potential write downs from energy-related holdings. In addition, RY is increasing the quarterly dividend by 3% to C$0.81 per share, annualized at C$3.24 and yielding about 4.8%.
The dividend yield is attractive, and I expect additional, steady increases in the distribution out to decade’s end. The payout ratio over that span should be in the 50% range, which is reasonable. Note, too, the bank has solid finances and has high marks for safety. In all, the stock remains suitable for conservative accounts with a desire for income and the share price should improve as energy recovers.