The Royal Bank of Canada (TSX:RY), commonly known as RBC, has consistently delivered impressive investment returns, doubling investors' capital over the last decade. With a history of strong performance, which showed up in its most recent quarterly earnings report, RBC stock could very well be on track to repeat this success. Here's how the top Canadian bank stock could do it.

RBC stock's impressive track record

RBC stock has been a standout performer among Canadian bank stocks, consistently delivering superior returns. The $237 billion bank stock delivered a remarkable 105.7% return over the past decade, doubling the capital for long-term-oriented investors who held on.

Beyond stock price appreciation, RBC has been a reliable source of regular dividends. These quarterly payouts have grown for 13 consecutive years, significantly boosting returns on RBC stock. If you had reinvested all dividends, the total return could have reached 205.6%, turning a $10,000 investment into $30,560.

RY data by YCharts

Current performance and future potential

Despite a lukewarm Canadian banking industry in 2024, RBC has demonstrated resilience by expanding business volumes and finding new revenue sources. The acquisition of HSBC's Canadian assets temporarily affected key metrics, such as a dip in return on equity (ROE) to 13.8% in the second quarter, before rebounding to 15.5% in the third quarter. Additionally, the bank's Common Equity Tier 1 (CET 1) ratio, which dropped to 12.8%, has recovered to 13%.

A strong North American economy, a diversified business model, strong brands, highly competent management teams, and strategic acquisitions have fueled RBC stock's consistent earnings growth. For example, RBC's Canadian banking division saw a 26% year-over-year increase in net interest income during the third quarter, thanks largely to the HSBC assets acquisition. Without the deal, earnings could have grown by 11%. Management is confident about unlocking $740 million in annual cost synergies, further boosting earnings.

Asset quality remains stellar, the bank is repurchasing up to 30 million shares within a year to augment shareholder returns, and RBC stock's historical price-to-earnings (P/E) multiple of 14.9 remains reasonably within a five-year range despite a 40% gain in share price during the past 12 months.

Why RBC stock might double your investment

So, why should you bet on RBC stock for the next decade? Sustained profitability from diverse sources, earnings growth, accretive acquisitions, and rising dividends could propel the bank stock to another decade of strong investment returns.

According to the Rule of 72, RBC stock would need to generate an annual compound return of 7.2% to double your capital in the next decade. This goal is achievable through a combination of dividends and capital gains.

Currently, RBC stock offers a 3.3% dividend yield, leaving just a 3.9% annual capital gain requirement to meet the 7.2% target. The bank's strong ROE and high earnings retention should support this level of price appreciation.

Key drivers:

1. Sustainable ROE: RBC's diversified operations help stabilize earnings across various economic conditions. The bank has averaged a 15.4% ROE over the past decade and aims for 16% in the medium term. With a 50% earnings retention rate, RBC can sustain earnings growth above 5% annually, easily exceeding the capital appreciation target.
2. Growing dividends: The bank has paid dividends since 1870, and has raised payouts for 13 consecutive years. The current quarterly dividend of $1.42 per share, yielding 3.3% annually, can compound your returns, especially if reinvested in more RBC shares.

What could go wrong?

Investing in RBC, like in any other stock, is not without potential risks. Economic downturns, regulatory changes, potential operational challenges, or increased competition could impact performance. However, RBC's long history of navigating such challenges suggests it is well-equipped to manage these risks and prosper.

Investor takeaway

While there's no crystal ball in investing, RBC stock appears well-positioned to potentially double your money over the next decade. With a strong track record, growing dividends, and a robust business model, RBC might just be the key to achieving your long-term financial goals.