Royal Bank of Canada $47 – Toronto symbol RY

ROYAL BANK OF CANADA $47 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest bank, with assets of $487.9 billion.

In the past few years, Royal has steadily built up its U.S. operations, mainly through acquisitions of regional banks and wealth management firms. Royal prefers to focus on smaller markets like North Carolina where it can quickly build market share. This way, it avoids competing directly with larger U.S. banks.

Thanks to a restructuring, earnings from Royal’s U.S. operations in its first fiscal quarter ended January 31, 2006 rose 3.1%, to $101 million from $98 million a year earlier. If you exclude the impact of the rising Canadian dollar, profit at the U.S. division grew 9%. Royal itself earned $0.89 a share (total $1.17 billion) from continuing operations in the quarter, up 18.7% from $0.75 a share ($977 million) a year earlier (all pershare amounts adjusted for a 2-for-1 stock split in April 2006).

Royal is now looking to expand its U.S. operations, particularly since the higher Canadian dollar cuts the cost of new acquisitions. It will probably focus on small operations that complement its current businesses.

The bank will likely earn $3.36 a share in fiscal 2006, and the stock trades at 14.0 times that amount. The $1.44 dividend yields 3.1%.

Royal Bank is a buy.

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