Canada's Top Bank Offers Nice Dividend, In Buy Area


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The Royal Bank of Canada ( RY ) is just above a buy point as it approaches a new high. It also offers a healthy dividend yield.

The stock cleared the 59.93 flat-base buy point Dec. 12 in strong volume and is near a 52-week high.

Canada's biggest bank announced Nov. 19 that profit for its fiscal fourth quarter ended Oct. 31 climbed 18% to $1.25 a share, in line with expectations. It was the third straight quarter of accelerating earnings growth following a 3% decline in Q1. Sales for Q4 rose 8%, up from the prior quarter's 1% rise.

The bank also raised its quarterly dividend by 3 cents to 60 cents a share, good for a dividend yield of 4% at the current share price. That's almost double the S&P 500 average of 2.1%. RBC's dividend is payable Feb. 22 to shareholders of record on Jan. 24.

RBC attributed its Q4 earnings growth to rising loan volume, strong revenue from fixed-income trading and improvement in its insurance business. But analysts say slowing economic growth and weakening home sales pose risks for 2013.

Canada's economy slowed in Q3 to a 0.6% annual rate from Q2's 1.7% pace, as exports plunged and business investment slowed. Residential spending fell and home construction slowed amid tighter lending rules designed to rein in Canada's overheating housing market.

To compensate for declining home loan demand, RBC in October agreed to buy the Canadian auto lending unit of auto lender Ally Financial for $4.1 billion to tap into the auto market.

Like many big-cap stocks, RBC's earnings have been lackluster but stable in recent years. Annual profit growth is seen holding steady at 10% this year and in 2013.

RBC and other Canadian banks were lauded for conservative lending standards that helped them avoid the brunt of the 2008-09 financial crisis.

The stock's chart shows tight trading with more weeks of accumulation than distribution. Its Accumulation-Distribution Rating has risen from a weak C- over the past month to B+, indicating strong demand for the shares.

Yet the stock's 10% gain so far this year trails the S&P 500's 13% rise.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Investing Ideas

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