Royal Bank (RY) is a Top Dividend Stock Right Now: Should You Buy?

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Based in Toronto, Royal Bank (RY) is in the Finance sector, and so far this year, shares have seen a price change of -7.2%. The bank is currently shelling out a dividend of $1.19 per share, with a dividend yield of 3.02%. This compares to the Banks - Foreign industry's yield of 2.79% and the S&P 500's yield of 1.51%.

Looking at dividend growth, the company's current annualized dividend of $4.78 is up 11.3% from last year. Over the last 5 years, Royal Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.79%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Royal Bank's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.

RY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2026 is $11.56 per share, with earnings expected to increase 12.23% from the year ago period.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that RY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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Royal Bank Of Canada (RY): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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