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Royal Bank (TSX:RY) has shown a 20% increase in its stock price since late October last year, prompting investors to assess its potential for inclusion in a self-directed Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Currently trading near $130 per share, Royal Bank's stock has rebounded from its 12-month low of around $108 but remains below its peak of $147 reached two years ago after the post-crash rally. In the context of TSX financial stocks, Royal Bank's trajectory reflects broader trends in the financial sector, highlighting the impact of market conditions and investor sentiment on stock performance.
Bank stocks, including Royal Bank, have faced pressure over the past two years amid concerns about interest rate hikes by central banks such as the Bank of Canada and the U.S. Federal Reserve. The aggressive rate hikes aimed to control inflation, which peaked at over 8% in June 2022 but has since decreased to 3.4% in December 2023. Economists anticipate a soft landing for the economy as higher rates prompt consumers to reduce discretionary spending, leading to a loosening of the labor market and easing upward pressure on wage growth.
However, there is a risk that rates may need to remain elevated for a longer period than expected, potentially leading to loan defaults and a deep recession if the economy slows down significantly. Despite these challenges, Royal Bank has maintained a strong financial position, with provisions for credit losses (PCL) increasing but remaining manageable relative to its loan book size.
With a common equity tier-one ratio well above regulatory requirements and adjusted net income of $16.1 billion in fiscal 2023, Royal Bank remains profitable and resilient. The company also offers an attractive dividend yield of 4.25%, supported by consistent dividend increases.
While Royal Bank's stock may not be as cheap as it was a few months ago, it still presents an opportunity for buy-and-hold investors to consider adding to their RRSP portfolios, particularly on any future pullbacks. As a high-quality dividend stock with strong profitability, Royal Bank merits consideration as an anchor holding in a self-directed RRSP focused on long-term wealth accumulation.
