Highlighted Stock with Solid Fundamentals: Royal Bank of Canada
I have read and followed value investing and stocks for a couple of decades, and what I have found is that it can work, even for a common investor. This blog post is the first of a planned series of highlighted stocks of publicly traded companies that I have personally determined to have solid fundamentals for value investing. This means that they have passed overall the test of the list of checks that I have given in my investing guides: “Your Ultimate Investing Checklist to Screen for the Best Company Stocks,” as well as “How to Successfully Approach Long-Term Investing and Screen for Individual Stocks By Value Investing.”
I am going to give you a general overview of the companies, as well as their financial fundamentals, and allow you, if you are interested, to do further research to find out more information about them, to see if they might fit in your investment portfolio. Keep in mind that there are many well-run companies out there, and I am only reviewing a limited number of them, so my hope is that you can use these summaries as examples in how you look at the fundamentals of other businesses, also, to help determine if they may be a good investment for you.
Highlighted Company: Royal Bank of Canada (NYSE: RY)
General Overview
Royal Bank of Canada (RBC) is one of North America's leading diversified financial services companies, serving over 17 million clients across 27 countries. It offers a wide range of services including personal and commercial banking, wealth management, insurance, and capital markets.
RBC has been around for over 150 years. It operates in the highly regulated Canadian banking system, which prevents competition outside of their six main large banks, and requires strong capital positions to prevent serious issues.
From Google AI Overview: “RBC's durable competitive advantages stem from a combination of its diverse business model, strong market position, customer-focused strategies, robust financial strength, and investments in technology and innovation.”
Financial Fundamentals
Earnings-Per-Share 10-year average growth rate: 7.4% (steady)
Return on Equity: 13.74% (high for a bank, and on its low range, historically)
Shares Outstanding: decreasing in general, until recently (recently has been approved to repurchase more shares, which can lead to a higher stock valuation, since there would be fewer shares outstanding)
Book Value (Net Worth) 10-year average growth rate: 9% (higher than the overall market)
Dividend Yield: 3.31 % (reasonable, but on its low end, historically)
(Macrotrends; Yahoo! Finance; Google)
Synopsis
RBC represents a stock that can be considered for both income, with its consistent dividend, as well as growth, with its increasing earnings and share repurchases. It likely will not have a total average return over 12-15% annually, if purchased at common prices, but it can be a solid long-term holding with its strong brand, diversified business model, financial stability, and earnings consistency.
Price Check
Use the chart on the website given below, to try to value RBC’s intrinsic value, and the margin of safety at different earnings projections, and the current price:
https://www.gurufocus.com/stock/RY/dcf
On the middle left of the page, choose Earnings Per Share (EPS w/o NRI), and not free cash flow (FCF), since banks have different accounting methods than other companies.
On the line below, you can adjust the discount rate, which gives your desired average annual rate of return.
The other prepopulated values should be appropriate, so you can look at the meter in the middle of the page to determine your buy price, and the estimated margin of safety.
To look up other stocks, you can go to https://www.gurufocus.com/dcf-calculator
Here’s an article by The Motley Fool that sums up RBC as an outstanding company in which to invest:
If I Could Only Buy and Hold a Single Stock, This Would Be it
To learn more about investing in stocks of solid companies at reasonable prices, you can go to:
Note:
You may want to have your stock investments be part of an overall financial plan, as outlined in the financial life area of this website. You may also want to hold your stocks for a minimum of about at least 3 years, since they can fluctuate in the near-term, but usually track earnings over the long-term.
If you are not comfortable with investing in individual stocks, you may instead choose to invest in a broadly diversified index fund or ETF (exchange-traded fund), to benefit from being in the market, while mitigating your risk.
In general, here is an excellent article regarding “conservative”to “aggressive” portfolios, based on your time frame and risk tolerance.
There are also "target-date funds" that balance out your portfolio as it goes along, according to your requested timeline and risk tolerance.
An investing method that is recommended for most people, by famous value investor, Warren Buffett, is to put your money into a fund that matches the S&P 500.
As far as how often, and how much to invest in funds, the general recommendation is to do it periodically, by dollar-cost averaging, with the same amount of money at each time period - such as weekly, biweekly, or monthly.
Whatever type of fund portfolio you choose, make sure that you keep the administrative and management fees low, as these can greatly erode your returns over the long-term.
Disclaimer: This article is meant for informational and example purposes only. I do not have any personal association or investment in this company, or GuruFocus, or receive any compensation from them, or the mentioned securities. I am not a financial advisor, and am not promoting the purchase or sale of any kind of securities. Securities such as stocks, bonds, and ETF’s can fluctuate with market conditions, and investor sentiment. Also, I recommend that investing in stocks should be done within the framework of a comprehensive financial plan, with risks taken into account. You may also want to consult with a Certified Financial Planner.