Thursday, February 7, 2019

Investing using fundamentals – RY

The Royal Bank is Canada’s largest bank and its business is mostly within Canada. It is also most diversified in its services: offering personal and commercial banking, wealth-management services, insurance, corporate banking, and capital markets services. Thus, each of the 5 Canadian banks has carved out its own niche or characteristics. Bank of Nova Scotia we have not analysed in this blogpost series, but it is Canada’s most international bank with a sizeable portion of its operations in S. America. 

 Figure 1 Royal Bank fundamentals. DCF means discounted cash flow method. Click the image for a better quality view.
The earnings graph in the upper right supports the high quality of the Royal Bank’s earnings, dividends and management.  By now you may think this is the current norm for Canadian Banks and it is today. In the next two posts of this series we also show it can be different. However, compare the growth of the Royal Bank earnings: it is better than BMO and worse than TD. When investing at today’s stock prices, next year’s total return is the worst of the three, while over the long term its compound rate on return is barely exceeding that of BMO while clearly lagging that of TD (and BIP).
This illustrates that all three Banks analyzed here are superb businesses but due to current stock valuations and projected total return over the coming year, TD is best.

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