Royal Bank

Assignment 4

Information on Royal Bank (RY):

• Royal Bank Common Shares (RY) recently closed at $103.35 on the TSE.
• Royal Bank profit last year was approximately $13 Billion dollars, from which it paid out $5.2 Billion in dividends.
• ROE for the Royal Bank is estimated to be fairly stable at 18.2%.

We provide a table below with the actual quarterly dividends of RY for the years 2014 to 2018 and the estimated quarterly dividend for 2019.

Year

Quarterly Dividend

2014

$0.71

2015

$0.76

2016

$0.81

2017

$0.87

2018

$0.94

Estimated 2019

$1.02

Required:

1. The market expects this pattern of dividend increases to continue therefore, calculate the cost of equity for RY. Show all work in detail.
2. If the Royal Bank was not planning to raise eternal financing then what will RY's growth rate be? Show all work in detail.
3. Identify some advantages and disadvantages of the Dividend growth model.
4. Given results above, would you recommend or not recommend RY as an investment instrument and why?