Royal Bank of Canada (TSE:RY) Is Paying Out A Larger Dividend Than Last Year

The board of Royal Bank of Canada (TSE:RY) has announced that it will be increasing its dividend on the 24th of August to CA$1.28. Based on the announced payment, the dividend yield for the company will be 3.6%, which is fairly typical for the industry.

See our latest analysis for Royal Bank of Canada

Royal Bank of Canada's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Royal Bank of Canada's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

EPS is set to fall by 0.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 44%, which is comfortable for the company to continue in the future.

Royal Bank of Canada Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was CA$2.16 in 2012, and the most recent fiscal year payment was CA$4.80. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Royal Bank of Canada Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Royal Bank of Canada has impressed us by growing EPS at 9.5% per year over the past five years. Royal Bank of Canada definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Royal Bank of Canada will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 12 analysts we track are forecasting for Royal Bank of Canada for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.