Then and Now – Royal Bank
Welcome to another Then and Now post, a continuation of my series where I revisit some older blogposts and either rip them to shreds (because my thinking has changed on such subjects) or I’ll confirm my position on various personal finance topics or specific stock and ETF investments.
You can check out my previous posts in this series about these stocks below:
Today’s post is about a Canadian dividend paying stalwart: Royal Bank.
Then
- I started writing about this stock back in March 2012 but I was a shareholder over a year before then.
- My reasoning to own this stock was very simple – maybe too simplistic – buying what you know can make sense.
I actually disagreed with a financial guru on this subject – gasp!
Devout indexer, successful author, speaker and more Larry Swedroe mentioned in a popular article at the time that buying what you know is a bad investment strategy.
I dared to disagree with Larry.
I looked at the TSX 60 index at that time, and I found it was full of the following stocks that seemed to pay dividends and offer capital gains too.
Companies that delivered intuitive products or services:
- People need to bank.
- People need insurance.
- People like heating and cooling their homes.
- People love their cellphones.
You get the idea….
The TSX 60 represented by low-cost ETF XIU was full of the following stocks:
- Major financial companies (including Royal Bank, Bank of Montreal, CIBC, Bank of Nova Scotia, among others)
- Major energy and utility companies (Enbridge, Suncor, Canadian Natural Resources, TransCanada, Fortis, and Emera)
- Major telecommunications companies (Bell Canada, Rogers, Telus – all listed in the top-30 Canadian stocks by market capitalization.)
Instead of owning XIU, although I did for a brief period of time, by owning Royal Bank stock directly I was starting the process to unbundle my Canadian ETF for passive income.
Have you considered unbundling your Canadian ETF for income?
Larry certainly disagreed with my thinking almost a decade ago and was kind enough to offer a few comments for that blogpost to convince me otherwise.
His knowledge and expert insights were duly noted by me, but they certainly didn’t stop me from investing in Royal Bank even further to this day.
Now
- At the time of this post, Royal Bank will be releasing its latest quarterly earnings soon.
- Last time I checked, since my decision to start buying this stock, it appears I invested in a company that has historically delivered exactly what I was seeking – a mix of growing dividend income and capital gains too. A bunch of both actually!
- Thanks to one of the handy calculators on Royal Bank’s site, I could look back at my investing history (when I started getting very serious as a dividend investor) to see what my returns have been since the winter of 2010 with my original investment:
Sources: https://www.rbc.com/investor-relations/share-information.html
- Well, Royal Bank’s dividend payment to me has doubled.
- The share price continues to climb – at the time of this post – in a pandemic no less.
My Royal Bank Decision is one of buy and DRIP and hold
Will Royal Bank continue to pay juicy dividends for the coming decades?
I believe so although any individual stock let alone the broad market future is always unknown.
But I can say that I will continue to hold Royal Bank for dividend income and capital gains for the foreseeable future along with many other Canadian and U.S. stocks for income.
I DRIP a few shares of this stock every quarter.
By owning this stock, I’ve seen money that makes money, makes more money.
By owning my mix of individual stocks and low-cost ETFs, I figure I posses an amazing 1-2 investing approach that matches my tolerance for investing risk and one that helps me meet my semi-retirement income and growth needs.
Check out my lazy, passive income approach using dividend stocks here.
This is our approach to wealth-building using low-cost ETFs here.
Thanks for reading and stay tuned for another Then and Now article in the future.
What do you make of my decision to disagree with an expert? Did I just get lucky?
Do you invest in Royal Bank like I do?
Let me know in a comment below!
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
I like the idea of investing in something that I know, at least in some small way. For instance I like shopping at Canadian Tire (who doesn’t?), so bought their stock. I hated being a Telus customer, so sold all my stock when I cancelled all their services. No way I wanted to invest in a company I didn’t want to deal with, just doesn’t make sense.
But a person can definitely know more about a company than the “Market” does, even without having any sort of insider information. I was a customer of a company and liked the product so bought the stock. In a fairly short period of time, the stock price tripled. Then a bit later, the “market” thought that the company’s sales were going to be adversely affected by a new competitor and the price fell to almost what I had paid. I knew that the market was completely wrong, because I was a customer, so I doubled my holdings, investing another US$10,000. Quite quickly again, the company’s stock price went up, to 11 times what I paid. I need to sell some soon to take some capital gains and will buy a company that I like dealing with. Any thoughts about BestBuy? I loved their quick delivery and price guarantees when shopping this year.
RY is also my largest individual bank holding. But based on when I originally purchased bank stocks, NA has been the best performer.
NA has been on fire. Glad we own it.
Yeah, I mean, everyone has biases. Larry has biases. I do too.
Buying a low-cost index fund can also be a form of “buying what you know” IMO. You don’t want to do any stock research or following, then buy an index fund. That’s all you know.
These blanket statements by some experts sometimes I find are a bit self-fulfilling but I also appreciate Larry was trying to educate me as well about the downside of what I was thinking about.
Hey Mark,
Agree with your analysis.
If the market was efficient, we wouldn’t have Game Stop scenarios. The reality is that stocks often trade wildly out of line with their fair value (however one decides to measure this). When that happens, it can be great for an investor to lock in a solid position with a great starting yield.
Similar to what you’re saying about RY, I did this with TD back in May 2009; it has given me everything I’ve wanted and more over the intervening years.
Take care,
Ryan
Great stuff Ryan. I’ve also owned TD for over a decade and have no regrets!
I love Canadian banks. There’s a reason why I didn’t go with one of the Canadian bank ETFs (https://www.tawcan.com/canadian-bank-etfs/). I think holding individual shares is way better. Look around, how many people you know switch banks regularly? Probably only a few. Most people stick with their banks for a VERY long time.
Yes, that’s true, they do but competition is always around the corner! That’s a great thing.
I don’t see many bank executives receiving ETF’s as part of their compensation packages. Love watching those bank dividends chug along with regular increases, occasional freezes but most importantly no cuts. Have held CM for over 22 years, set the DRIP and left it alone. Capital gains + dividend growth have done rather nicely.
Ha. Good point 🙂
22 years? Jeepers. You must be rolling in it!
I don’t own RY directly but i have ZEB in my tfsa and it drips 3 shares a month but my plan in the future to sell it and buy shares of two banks directly .
on a side note today i sold my shares in HIVE blockchain and ended up with a bit of profit and put that money towards buying few shares in Telus which I’m kind of happy to own my first dividend stock , I know telus is a good company and lots of room to grow, as for bitcoin and blockchain i realised that i don’t have the heart to hold such a volatile and risky investment so i’m glad that i got out early in the game and now i can sleep better knowing that my lazy approach will get me to my goal without the need for the roller coaster ride:)
That’s a great point Gus. You really need to invest with your behaviour and personality in mind. If you don’t have the stomach for risky investments – most don’t – then invest in a way that helps your realize your goals without the nausea.
Big fan of Telus here.
Fair enough, for me the dividend doesn’t do it for me. I’m sure our age difference says a lot as well. For as long as I have managed my portfolios I have always done my DD and purchased holding that I think will carry me through our retirement. As a retired business owner, I don’t have a pension so my portfolio has to do the heavy lifting. All the best
I don’t invest in etf’s as they give you a lot of good stocks but also stocks I don’t want to own. I can get diversity buy owning good companies that give stock appreciation and dividend growth. But each to their own.
Very fair David. That’s the challenge with ETFs – you get all the good, new, upcoming, duds and stocks ready to die at the same time.
I’m too lazy to follow all the tech stocks and more so I figure $QQQ or $VTI do it for me in the U.S.
Canada is a different beast vs. U.S.
Thoughts?
I also like to buy what I know and understand. But, I don’t do that blindly, I only buy if the financials make sense. And all RY has done for me for the past 30 years, that I’ve been buying it, is make money. Yes there are sexier stocks that I could have made more off of. But in terms of investment piece of mind, as long as our banking regulations are the way they are, RY will keep making money hand over fist and I put it right after the GOC in terms of security. There are a couple of provinces that run a greater risk of going broke before RBC.
The challenge is knowing what the sexy stocks are in the future given past performance is not indicative of future results…
That said, I like RY and have for 10+ years otherwise I wouldn’t bother owning it.
“There are a couple of provinces that run a greater risk of going broke before RBC.” – ha. Good one!
Canadian banks generally keep doing well through thick and thin. RY is clearly at the top or tied for it as a wide moat bank, highly profitable and very well run. That’s unlikely to change for some time. Invest away. It’s my largest bank holding and I continue to drip this one.
Nice U.S. and beyond diversification with RY too! I figured you owned a bit!
Ya, a bit!
I was buying all six banks. But after investing for dividend growth for three years, now I think RY, TD and NA are the best three among the banks and want to consolidate my portfolio to hold only these three. RY is my biggest bank holding right now. RY and TD always look expensive but now I realized quality won’t be cheap. There is a reason why CM is always cheaper than other banks. I feel lucky that I didn’t buy LB when it looked very cheap. If I want to speculate, I can always speculate with other things for more gain, banks should let me have a good sleep.
Added to TD today actually. Betting on TD will have good earning just like BMO and BNS.
I know other bloggers and investors that favour those three as well May: RY, TD and NA.
I own all 6 myself and always will until something changes. I recall CM is my lowest holding, not DRIPping, just getting the dividend and redeploying that money into other assets like renewables and Canadian telcos like Telus.
I bought RY in August 2010 @ $53.10. My research told me that the Royal, along with other Canadian Banks, appeared to keep their Dividend payout between 3% and 4%. Thus, logic dictated that if the share price increased, so too would the $ value of the Dividend to maintain that same yield. History has proven that to be correct. the current quarterly dividend of $1.08 represents a yield of 8.14% based on the original share price. Not a revenue stream, never mind about the 100% gain in the price of the share. That is the magic of low risk, long term, buy and hold investing!
Nice around $53. I recall my price was similar very early in 2011.
Amazing how well sometimes boring investing can work!
Thanks for your comment.
It is not only a question of laziness but one of not wanting to incur capital gains prematurely. I also have many individual stocks, all six of the Canadian banks, and some of them have gone up over 300% since I purchased them in a non-registered account years ago. I am not going to sell them now to purchase an ETF of Canadian stocks and crystallize the capital gains embedded in them. I feel confident in picking my own stocks in Canada and do not do a lot of selling. I did own the TSE 60 ETF XIU a number of years ago when Nortel made up a large percentage of the stocks in the portfolio and look at where that got me when it crashed. I was not protected even though I was in an ETF. In hindsight it would have been better to have held the capped version of the ETF XIC.
However outside of Canada I invest solely in ETF’s since I do not know the markets very well and I do not feel confident in buying individual stocks. This has served me well to date.
At some point I will not want to pick my own stocks in Canada when I will not have the interest and capability to do so. At that point I may hand it all over to an investment manager to manage for a reasonable fee. I’m not there yet!
Whoa, 300%. Amazing. What’s the plan to slowly incur capital gains then over time? They are an efficient form of taxation for now. Who knows what the gains exemption rate will be in a few years? 60% 75%? I suspect taxes on non-registered assets are going up over time.
Like you, owning more low-cost ETFs outside of Canada. I can’t be bothered doing all the research. So, I own right now some $VTI and $QQQ for a small tech-growth kicker predominantly. Might own more $HGRO over time.
https://www.myownadvisor.ca/tax-efficient-investing-horizons-etfs/
Currently use BMO ETF for 6 Canadian Banks. Having reviewed you comments on CIBC, BNS and Royal will break apart the ETF. Thanks for your thoughts.
Pros and cons to everything Gus. I just felt for me, over time, since I was determined to own a mix of CDN banks and other CDN stocks, might as well unbundle my ETF and pay no money management fees. That approach goes take some portfolio monitoring but I enjoy a bit of that.
I believe in buying the best dividend paying companies in each sector and holding them forever. The Royal Bank was definitely a great choice in the financial sector. It is difficult to understand how an ETF is likely to outperform a carefully-selected portfolio of high-quality stocks over the long term. The high-quality companies are diluted in an ETF and the fees add up as your portfolio grows.
Thanks Stuart! I feel my buy and hold and reinvest dividends approach has worked rather well and is slightly beating the XIU index I benchmark against over a 10-year period. So, it’s worth it for me for now and my approach is helping me meet my income goals for a future semi-retirement.
First off, to claim the “market” knows more than anyone or any thing is silly (I didn’t read any further). If the “market” is so all knowing then Bre-X or Nortel or Crocus or etc etc would not have happened. The “market” is just as open to manipulation as anything involving money. I’m more inclined to believe that some use and play the “market” for their gain rather than in the belief that the “market” knows.
Second, if I use a tool that gets the job done, do I need to buy the *best* tool at the *best* price? Do I need to buy a set of wrenches (two if you include metric) when a fits-all will do? ETFs can do the job, holding individual stocks can do the job. Use what is comfortable and does the job.
Have RY, both direct, and in ETFs and mutual funds. I’m fine with that.
I agree with the “open market” comment – I can appreciate where Larry was coming from years ago but I still didn’t follow this advice 🙂
If I sell RY or lots of other stocks, I will be sure to tell others via the blog.
ETFs work for many because they take most stock selection risks out the equation. ETFs are not the be-all, end-all since I believe investing behaviour trumps most things over time, let alone the savings rate is incredibility important in building wealth, moreso than one dividend stock here or there.
Maybe I’m just oversimplifying things vs. Larry’s experience.
“savings rate is incredibility important in building wealth, moreso than one dividend stock here or there.”
Yup, savings rate and length of time invested. Agree 100%.
I’ve got more ETF position now that I ever did but it’s more to do with me being lazy. I still have 15 or so individual holdings and many of them are also in the ETFs I have. I realize it isn’t really logical to do this, but I’m fine with having the individual stocks and not paying MERs on everything.
I’m getting more and more lackadaisical and accepting of the mediocre the older I get.
Lazy as I get older, me too 🙂
Mark
RY, one of the long-term good ones, especially when if offers a reasonable yield.
You bet 🙂