- Last year 36%.
- 89% in the last 3 years.
- 161% in the last 5 years.
- 398% in the last 10 years.
- 1,000% in the past 20 years.
Despite these market-based returns, blue-chip banking shares today also offer you a dividend yield of almost 3%. Let’s see if Royal Bank of Canada stock is still a good buy in January 2026.
RBC focuses on long-term growth
Royal Bank of Canada is targeting a return on equity (RoE) of 17%, while CEO Dave McKay outlined an aggressive growth strategy based on three key pillars: expanding net interest income, fee-based revenue growth and efficiencies powered by artificial intelligence.
RBC stock currently trades at a price-to-earnings ratio of 14.7 times, which is above the 10-year average of 11.9 times. The bank trades at a premium to peers in Canada and the US. A higher valuation forces RBC to achieve exceptional results in the short term. In particular, McKay emphasized that the bank can achieve its objectives without increasing its risk appetite.
- RBC plans to operate with a common equity Tier 1 ratio between 12.5% and 13.5%.
- This ratio is an important banking measure that compares a bank’s highest quality capital to its risk-weighted assets. It also indicates a bank’s ability to absorb losses and maintain stability in a challenging environment.
- RBC confirmed that excess capital above the 13.5% threshold will be returned to shareholders through buybacks.
The bank generates approximately 80 basis points of organic capital every quarter, net of dividends. This gives it the flexibility to focus on acquisitions or deploy capital for buybacks. McKay explained that the bank would only pursue transformational deals that could quickly return to the 17% RoE target.
The growth strategy is highly dependent on an improvement in return on assets, from roughly 87 basis points last year to 100 basis points.
A third of this improvement will come from net interest margin expansion as the struggling mortgage company recovers from its worst margin contraction in 25 years. Another third will come from asset management and capital market fee income, while the final third will come from efficiency gains.
RBC’s US operations offer significant opportunities.
- City National Bank continues to pursue target returns as its asset and capital markets franchises expand rapidly.
- The bank launched RBC Clear, a senior markets platform that raised $23 billion in U.S. deposits in three years, with ambitions to reach $50 billion.
- This financing capacity could transform RBC’s ability to pursue U.S. acquisitions by solving financing challenges that limit regional banks.
McKay identified cyber risk and sector credit volatility as key concerns, especially as trade disputes surrounding CUSMA (Canada-US-Mexico Agreement) negotiations create uncertainty for certain sectors.
However, Canadian consumers remain resilient and RBC sees unprecedented infrastructure investment opportunities in Canada, totaling $175 billion in defense and infrastructure spending over the coming years.
Is RBC stock currently overvalued?
Analysts covering RY stock predict adjusted earnings will grow from $14.43 in fiscal 2025 (ending October) to $17.22 in fiscal 2027.
If the bank stock trades at its historical earnings multiple of 11.9 times, it will cost $205 at the end of 2026. Currently, RBC stock is trading at $229.60 per share.
Given consensus price targets, RBC shares are trading at a 2% discount in January 2026. Taking dividends into account, the total return over the next twelve months will be around 5%.
#Royal #Bank #Canada #Stock #Outlook