Retail banking and insurance growth sustain this 3.9% yield

This leading Canadian bank’s higher earnings are due to banking and insurance gains.

The dividend yield is now a high 3.9%, reflecting a 4.1% dividend hike in May.


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ROYAL BANK OF CANADA, $103.46, Toronto symbol RY, reported higher earnings for its latest quarter thanks to better results from personal and commercial banking and insurance. Those gains offset weaker results from its wealth management and securities-trading businesses.

The bank earned $3.17 billion in its fiscal 2019 first quarter, ended January 31, 2019. That’s up 5.3% from $3.01 billion a year earlier. Due to fewer shares outstanding, per-share earnings rose 7.0%, to $2.15 from $2.01. That matched the consensus estimate.

Earnings from retail banking (50% of the total) rose 3.3%, mainly due to higher loan and deposit volumes. Rising interest rates also contributed to the increase.

The bank’s capital markets business (21%) saw its earnings fall 12.7%, as market volatility hurt demand for new equity and debt issues; it also cut Royal’s underwriting fee income. The wealth management business (19%) reported flat earnings in the quarter as new investments in the business and higher regulatory costs offset a 4.8% increase in assets under management.

Blue Chip Stocks: Dividends have grown and keep going up

Earnings from Royal’s insurance operations (5%) jumped 30.7%, partly due to fewer claims. However, earnings from investor and treasury services (5%) fell 26.5%. That’s partly due to increased spending on that business to spur future growth.

In the quarter, overall revenue improved 7.0%, to $11.6 billion from $10.8 billion. The bank set aside $514 million to cover potential bad loans, up 53.9% from $334 million a year earlier. The jump is largely due to extra provisions for an unnamed client in the utilities sector.

The bank is raising its quarterly dividend by 4.1%. Starting with the May 2019 payment, investors will receive $1.02 a share, up from $0.98. The new annual rate of $4.08 yields a high 3.9%.

Royal’s dividend has now grown an average of 7.5% annually over the last 5 years.

Recommendation in The Successful Investor: Royal Bank of Canada is a buy.

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