Royal Bank of Canada $54 – Toronto symbol RY

ROYAL BANK OF CANADA $54 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is the largest bank in Canada, with assets of $536.8 billion. It also operates in the United States and 30 other countries. International operations supply a third of its income.

Royal has steadily built up its U.S. operations in the past few years. It recently bought Flag Financial Corp. for $456 million U.S. Flag Financial operates 17 branches in Atlanta. Royal also agreed to buy 39 branches in Alabama for an undisclosed sum.

se purchases will strengthen Royal’s retail banking business in the fast-growing southeastern U.S. It also gives Royal more opportunities to offer its retail customers other services, such as insurance and wealth management.

Royal’s earnings from continuing operations in its fourth fiscal quarter ended October 31, 2006 jumped to a record $0.96 a share (total $1.3 billion) from $0.41 a share ($543 million) a year earlier. However, the year-earlier quarter included special charges of $556 million, mostly to settle an Enron-related lawsuit and extra insurance provisions for hurricane damage. If you disregard these items, per-share income still grew 50%.

Revenue in the quarter rose 10.4%, to $5.3 billion from $4.8 billion, thanks to strong performances by its retail banking, wealth management and stock trading businesses.

Royal’s recent restructurings are also paying off. Its efficiency ratio (non-interest expenses divided by revenue — the lower, the better) fell to 55.2% in the latest quarter from 69.0% a year earlier.

The improving results let Royal increase its dividend twice in the past year. The current rate of $1.60 yields 3.0%. The stock trades at 13.6 times the $3.98 a share it should earn in fiscal 2007.

Royal Bank is a buy.

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