Money in the Bank – Royal Bank of Canada

With the banks falling out of favor, in large part due to the "credit-crunch" that is taking place in the US and affecting world-wide markets, some bank stocks are looking like bargains. Royal Bank of Canada has fallen recently with the rest of the banks, though the stock is up today (August 2nd 2007).

A major catastrophe could strike and affect Royal, and affect all Canadian banks - for example, should a major hedge-fund go belly-up, any exposure to that titanic-like disaster would affect the stocks of any involved parties. However, nothing in the books actually looks bad for RBC. First off, they have no exposure to the US sub-prime mortgage/loan market meltdown that I know of. Secondly, the real-estate market in Canada is still read-hot, unlike in the US, with a healthy mortgage market alive and well in the great white north. Lastly, Royal Bank is traditionally very conservative, i.e. very tight with their money. They do not take the kinds of risks other banks have made the papers for recently (CIBC cough, cough, BMO cough , cough.) Well, OK, who knows what shady deals RBC might be involved with – I mean they were involved with Enron (like everybody else) – but we haven’t heard of any lately.

Check-out Royal Bank of Canada on Google Finance (notice the recent drop and subsequent rise in their chart - should be a lot of that in the next little while)

Royal Bank of Canada is in the exclusive club of stocks that has consistently increased their dividends, and as they do, their stock price goes up. Its one of the safest and most boring stocks you can own – almost as safe as a savings account, but pays out more than a GIC when you combine the dividend and the stock value increase. Lately, the stock has fallen along with the other financials.

I have always wanted to own Royal, but every time I looked, it was higher then the last time, and I felt like I had missed the boat. Well, the stock price is looking attractive now amongst the sell-off and market jitters spreading like wildfire, but I don’t think this bank is going to fall prey when the dust settles from the impact of the credit crunch punch hitting all the banks.

I like Royal Bank – unfortunately it has gone up about a dollar in the last day – I should have posted this yesterday when I began writing this post. Oh well - hindsight is always perfect. In any case, I believe the market will see-saw up and down for a little while yet, so look out for some down days to get in, if you are so inclinded. A little bad news that hits all financials will drag Royal down along with it. If you want in, as always, buy in phases – this is true of all long term investments – don’t buy all at once, so as to average your “book” price.

In this sell-off climate, I like a safe play like RBC. Even though financials and commodities are conventionally what you want to get out of during a climate like the one we are in, in the case of Royal it is a safe bet.

DISCLOSURE: I do not own any Royal Bank of Canada shares at the time of this writing. As a long-term, conservative investor, I like Royal and its fat dividend – but always do your own research to make sure any given stock is good for your portfolio and your risk profile.

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