There's a lot to consider when looking at whether to buy Royal Bank of Canada (TSX:RY), especially when considering it for its 3.3% dividend yield. Therefore, it's essential to dive into the company's most recent performance, dividend history, management, and future outlook. As one of Canada's largest and most well-established banks, Royal Bank of Canada (RBC) offers a steady dividend and a strong balance sheet. Thus, the Big Six Bank is a top contender for dividend investors looking to secure long-term income. So let's get into more on this top stock.

Recent performance

In RBC's most recent earnings report for Q3 2024, the bank showcased quarterly revenue growth of 13% year-over-year, thus bringing in $56.5 billion in revenue over the trailing 12 months (TTM). Net income was $15.9 billion, with diluted earnings per share (EPS) at $11.30. These figures highlight the bank's profitability and ability to maintain steady returns even in uncertain economic environments. The 16.2% earnings growth signals that RBC continues to manage its operations efficiently, providing shareholders with confidence in its future potential.

RBC's dividend history is also impressive, offering consistent payments to its investors over the years. Currently, the forward annual dividend rate is $5.68, giving the stock a 3.3% dividend yield. Over the past five years, the average dividend yield has been around 3.9%, thereby demonstrating stability in its payout. With a payout ratio of 49%, the bank keeps a reasonable balance between rewarding shareholders and reinvesting profits back into the business.

Positive growth

Recent headlines have been mostly positive for RBC. The bank is continuing to invest in its digital transformation, expanding its capabilities in wealth management and commercial banking. RBC has also been relatively resilient in managing credit losses amid economic fluctuations. Management's focus on diversifying revenue streams while enhancing operational efficiency places the bank in a strong position to weather potential economic headwinds.

RBC's management team is led by CEO Dave McKay, who has been with the bank for over two decades. Under his leadership, the dividend stock has expanded internationally while maintaining a strong presence in its home market. McKay's approach to technology investments, coupled with a focus on sustainable banking practices, has reinforced RBC's reputation as a reliable and forward-thinking institution.

Future outlook

Looking ahead, Royal Bank's future appears promising. Analysts project further growth in both earnings and revenue as the bank capitalizes on trends like digital banking and wealth management. Furthermore, RBC's strategic focus on expanding its U.S. operations through City National Bank positions it well for future growth, particularly in wealth management, which remains a key driver of revenue.

In terms of valuation, Royal Bank of Canada's stock currently trades with a forward price/earnings (P/E) ratio of 13.5. And this is relatively attractive compared to industry peers. The price-to-book ratio of 2.1 indicates that while the stock isn't cheap, it's priced fairly given the bank's strong fundamentals. With its recent stock price nearing its 52-week high of $175.04, there's potential for modest capital appreciation alongside the dividend.

Bottom line

Altogether, Royal Bank of Canada's 3.3% dividend yield, strong earnings growth, and prudent management make it a solid buy for income-focused investors. The bank continues to hold a longstanding commitment to returning value to shareholders through dividends. Combined with its robust financial performance and future growth potential, it's an attractive option for those looking to build a reliable income stream leading into retirement.