Royal Bank of Canada (TSX:RY) has showcased its resiliency over the years, delivering outsized gains to shareholders. Since June 2004, shares of the Canadian banking giant have returned 375%. However, if we adjust for dividend reinvestments, cumulative returns are much higher at 927%. Comparatively, the TSX index has returned 360% to investors in dividend-adjusted gains in this period.
Despite its market-thumping rally, Royal Bank of Canada offers a dividend yield of 4%, given it pays an annual dividend of $5.68 per share. While the Royal Bank of Canada is part of a cyclical industry, it has raised its dividends by 8.7% annually on average in the last two decades, enhancing the effective yield over time.
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A strong performance in fiscal Q2
In the fiscal second quarter (Q2) of 2024 (ended in April), Royal Bank of Canada reported a net income of $4 billion, up 7% year over year. The banking giant attributed its strong performance in Q2 to record earnings in the capital markets business and strong performance in verticals such as commercial banking and wealth management. After adjusting for non-recurring items, RBC’s net income rose 11% to $4.2 billion, or $2.92 per share.
Royal Bank of Canada’s capital markets business saw an increase in net interest income due to higher spreads, solid volume growth, and higher fee-based client assets. These factors were offset by higher expenses and investments in organic growth.
Interest rate cuts in the next 12 months should improve the lending environment and benefit RBC. Moreover, the lower cost of debt should reduce the provision for credit losses and boost the bottom line.
Priced at 12.3 times forward earnings, RBC stock is reasonably valued and trades at a discount of 9% to consensus price target estimates. After adjusting for dividends, total returns may be closer to 13%. However, here is another dividend giant I’d buy over RBC right now.
National Bank of Canada stock
National Bank of Canada (TSX:NA) is a TSX heavyweight that has outpaced RBC in the last two decades. After adjusting for dividends, the TSX bank stock has returned more than 1,000% to shareholders since June 20024. Today, it pays shareholders an annual dividend of $4.40 per share, indicating a yield of 4.14%.
Last month, National Bank disclosed plans to acquire Canadian Western Bank for $5 billion. With a loan book of $37 billion, Canadian Western Bank has 39 branches located across Western Canada and Ontario. The acquisition will increase National Bank’s commercial banking portfolio by 52%, diversifying the revenue stream.
National Bank expects the transaction to be accretive to adjusted earnings on run-rate cost as it has identified $270 million in synergies.
In fiscal Q2 of 2024, National Bank reported a net income of $906 million, up 9% year over year. Its Q2 earnings of $2.54 per share was higher than the year-ago figure of $2.34 per share. National Bank attributed top-line growth to strong performance across business segments, which were partially offset by higher non-interest expenses and higher provisions for credit losses.
Priced at 10 times forward earnings, National Bank of Canada stock trades at a discount of 12% to consensus price target estimates.
