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Canadian banks offer more goodies to financial investors than almost any other in the world: stability, fat capital cushions, juicy profits and juicier dividends. Granddaddy Royal Bank of Canada (NYSE: RY ) , the biggest of the northern big banks, is no exception, having just turned in a really stellar Q4 earnings report.
There are many reasons to consider buying into this moneymaker, but here are three outstanding reasons why RBC would be a sweet addition to any bank investor's portfolio.
Business is booming...
Though a slowdown in lending activity has been predicted, Canadian banks haven't seen it. The retail lending business is on fire, particularly in the mortgage arena. Banks such as Toronto-Dominion (NYSE: TD ) and the Canadian Imperial Bank of Commerce (NYSE: CM ) have been especially busy, as has Royal Bank . This is due to a still-healthy housing market, as well as the fact that these banks are protected by the Canadian government, which will take on the risk through its Canadian Mortgage and Housing Corp. insurance arm if problems arise with mortgage loans. Despite its availability, it is worth noting that of the six big Canadian banks, only Royal Bank does not depend upon that insurance backstop.
Retail banking isn't the only thriving section of RBC's business profile. The company's Capital Markets section made a hefty contribution to overall profit this year, as fixed-income trading and investment banking took off. This is in stark contrast to other large banks like Swiss-based UBS (NYSE: UBS ) , Goldman Sachs (NYSE: GS ) , and JPMorgan Chase (NYSE: JPM ) , which have seen revenues from such activities decrease in recent years.
...and profits are up
RBC's last quarter was brilliant in many ways, not the least of which was because of the high profits the bank made. Not only was the profit level historic for the bank, it represented the highest reported by any Canadian business thus far. The bank reported $7.5 billion in income, and revenue from capital markets increased threefold , as did trading revenue.
The end result of all this incoming cash has been a surge in generosity by RBC. The bank plans to pay its employees bonuses of 11% this year, and other Canadian banks are feeling flush, too. By contrast, JPMorgan has cut its bonus pool by approximately 2%.
Royal Bank shared the wealth with its investors, as well. The bank paid out a dividend of $0.60 per share in late October, up from its previous payout of $0.56.
RBC is looking to expand
Like its peers, Royal Bank is on track to expand outside of Canada, from where most of its current income originates. In comments regarding future plans, the bank's CEO noted in the third quarter report that he would like to see at least half of RBC's revenue come from outside of Canada. To this end, the bank's wealth management arm has been aggressively pursuing business in the U.S., as well as in other parts of the world.
In addition, with the recent purchase of Ally Financial's Canadian unit, the bank has become a strong presence in the auto lending sector -- and, the unit is expected to bring in around $120 million in its first year.
Add to all this the fact that all six of Canada's biggest banks made the Global Finance list of the world's 50 Safest Banks for 2012, and it's easy to see why banks like Royal Bank of Canada look like a financial sector bargain.
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