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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Royal Bank stands firm against illegal trading accusations

April 17, 2012 -  Be the first to comment
Posted by: Pat McKeough Filed in: Stock Investing
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Dividend paying stocks: Royal Bank of Canada logo image

ROYAL BANK OF CANADA (Toronto symbol RY; www.rbc.com) is Canada’s largest bank, with $815.0 billion of assets.

The U.S. Commodity Futures Trading Commission (CFTC) recently accused Royal of using a complex series of trades to cut its tax bill in Canada.

Specifically, the CFTC says that divisions of the bank bought Canadian and U.S. dividend stocks (plus futures contracts on these stocks) and quickly sold them to other divisions. These transactions would let Royal earn tax credits on the dividends it received from these holdings.

The CFTC claims that this process was a wash trade, in which the bank artificially set prices for these transactions, instead of letting the market determine the prices. Royal has denied these allegations.

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Dividend stocks: Royal Bank takes full control of investor services firm

Royal recently agreed to buy the 50% of RBC Dexia Investor Services that it does not already own. Formed in 2006, this 50/50 joint venture provides safekeeping and administration services (including holding securities and processing transactions) to institutional investors.

Meanwhile, the bank earned $1.9 billion, or $1.23 a share, in the first quarter of fiscal 2012, which ended January 31, 2012. That’s down 6.0% from $2.0 billion, or $1.31 a share, a year earlier. Lower profits from Royal’s securities trading business was the main reason for the earnings decline.

Royal set aside $267 million to cover bad loans in the latest quarter, up slightly from $264 million a year earlier. Revenue rose 4.9%, to $7.6 billion from $7.2 billion.

The bank will probably earn $4.88 a share in fiscal 2012. The stock trades at 11.5 times that estimate. The $2.28 dividend yields 4.1%.

In the latest edition of The Successful Investor, we examine the viability of the CFTC’s case against Royal Bank and assess the possible consequences for the bank. We also look at the potential risks and rewards of the bank’s raised stake in Dexia Investor Services. We conclude with our clear buy-sell-hold advice on the stock.

You get our recommendation on Canada’s big five banks and more leading Canadian dividend stocks when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and get all the details on “My #1 Stock Pick for 2012.” Click here to take advantage of this special subscription offer.

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