Being a stock picker can seem daunting. There are so many companies listed on the market, and many appear to be high quality. And it can be equally frustrating when you get stuck with a company that doesn’t really move the portfolio in any positive direction. We’ve all been there.
One way to minimize this negative on your portfolio is to invest in companies that pay strong dividends. Receiving cash back every quarter — or investing it back into the company — is a great way to move your portfolio in the right direction.
Have you considered Royal Bank of Canada (TSX:RY)(NYSE:RY) to help move your portfolio in the right direction?
At first glance, it might seem bizarre that I would recommend a bank. There is so much discussion about how the housing market across Canada is in bubble territory, so, obviously, the banks are going to suffer from this, right?
As of April 30, 2017, Royal Bank of Canada had $246 billion worth of mortgages on the books. Of that, only 0.22% of those mortgages were +90 days past due, down from 0.23% in Q1 2017.
Nevertheless, the Toronto market has likely peaked, and I expect prices to start dropping, which could lead to an increase in defaults. However, the current numbers don’t show that happening and, more importantly, it won’t be a sudden and significant rise in defaults, so the bank should be fine.
On top of a very low default rate is the increase in interest rates. Royal Bank of Canada just increased its two-year, three-year, and five-year fixed-term mortgages by 20 basis points — and the central bank increased interest rates by a quarter percent. This increases the spread between what it pays its depositors and what it collects on interest.
Frankly, Royal Bank of Canada is in a strong position. Its revenue was up 8% to $10.3 billion year over year, and its net income was up 9% to $2.8 billion. Its return on equity is up 1%, which is a sign that the bank is doing a better job generating returns for its investors.
Clearly, the bank is in good health. Here’s why you might want to buy shares.
Royal Bank of Canada has been incredibly shareholder friendly with buybacks as well as dividend growth. On the buyback front, it bought back over 30 million shares of stock and will likely continue to purchase more shares going forward. Buybacks are one of the easiest ways for a company to boost its earnings per share.
And on the dividend front, Royal Bank of Canada pays $0.87 per quarter to common shareholders. This is good for a 3.67% yield, which, compared to other dividend stocks, is a little on the low side, but you’re getting a strong bank versus a riskier stock. This dividend was increased by 5% in Q1 2017, which followed a 5% increase in 2016. As long as earnings continue increasing, I expect the dividend to follow.
I believe you should consider purchasing shares of Royal Bank of Canada. It’s in a strong position, earnings will continue to rise, and the company has taken a very pro-shareholder approach. The return on investment should be quite lucrative for years to come.
