Income · Stocks to Consider and Updates

Royal Bank of Canada Beats Earning’s Estimates

Royal Bank of Canada (NYSE: RY – $79.47), the country’s largest bank, reported earnings of C$2.83 billion (US$2.2 billion), or C$1.88 a share, compared with C$2.53 billion, or C$1.65 a share a year ago. Adjusted earnings settled at C$1.92 vs. consensus of C$1.87 a share. Total revenue rose 12% to C$10.52 billion. The bank’s net interest margin expanded by 2 basis points to 1.72. The results take into account C$3 billion of spending on technology, more than 7% of annual revenue. The tech spending, which included opening a new artificial intelligence lab in Montreal, tempered growth for the quarter. However, despite these investments, Personal & Commercial Banking increased 10% on a year-over-year basis and the company’s Wealth Management business had a 24% increase for the quarter.  Loans, net of loan losses, rose 4% to C$542.62 billion in the period. The bank is expecting mortgage growth to “slightly moderate” after new rules meant to curb risky lending take hold at the beginning of 2018 and some customers have borrowed ahead to avoid the new rules, which may have helped boost the mortgage business during the quarter. In September, the bank increased its prime lending rate to 3.2%, up 25 basis points.

        For the full fiscal year, Royal Bank earned C$7.52 vs. C$6.78/share last year and Street estimates for fiscal 2018 are C$8.03 per share. The company completed a share-buyback program buying back 5 million shares for C$462.8 million through the period ended October 31. The recently increased dividend is yielding investors 3.6% at current levels and long-term projections indicate that additional healthy hikes are likely to occur. The payout ratio during that period ought to be roughly 55%, which should not place a financial burden on the company. Other enticing qualities include a top-notch balance sheet, improvement in energy prices and a below-market Beta. Continued retention of shares in Royal Bank for income-hungry investors remains warranted.

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