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The Perfect Dividend Stock to Protect Your Portfolio in Volatile Times

edit Person using calculator next to charts and graphs
Image source: Getty Images.

Written by Christopher Liew, CFA at The Motley Fool Canada

Some people avoid investing in stocks during volatile times for fear of losing money. Market pullbacks are natural occurrences, and volatility spikes whenever there’s uncertainty. However, long-term investors would instead stay the course and protect their portfolios.

If you’re into dividend stocks, Royal Bank of Canada (TSX:RY) is the perfect one to own. The giant lender is the largest company on the TSX by asset size and boasts a sterling dividend history. More importantly, its financial health and stability are never in question.

Limited fallout risk

The Canadian banking sector has safeguards and policies that would prevent collapses of financial institutions similar to the U.S. recently. Trevor Tombe, an economics professor at the University of Calgary, said the prospect of failure remains extremely low today. He added that besides having a high degree of concentration in its banking system, it’s vastly different from America.


According to Laurence Booth, a finance professor at the University of Toronto, a bank failure in Canada is extremely unlikely due to the conservative nature of its banks and regulators. He cited the financial crisis in 2008 and 2009 when Canadian banks passed the big test, and the country’s banking system has since gotten even more secure.

Overcoming downturns

The COVID-19 pandemic spooked investors and fueled a market selloff in 2020. No stock, including RBC shares, escaped the downturn. Its stock price tanked to as low as $63.49 on March 23, 2020, but still finished at $95.24 at year-end, or 50% higher than its COVID low. The blue-chip stock did better than the broader market for the year at +7% versus +2.17%.

In 2022, when inflation soared dramatically, and interest rate hikes began, nearly all sectors had negative returns except for energy. However, RBC lost only 2% overall compared to TSX’s -8.66%. While net income in fiscal 2022 also declined by 2% year over year to $15.8 billion, its capital position remains robust (it has a 12.6% common equity tier-one ratio).

Resilient big bank

Dave McKay, RBC’s president and chief executive officer, said, “While market conditions continue to be tough, our 2022 results reflect a resilient bank that is well positioned to pursue strategic growth and deliver long-term shareholder value.” However, in the first quarter (Q1) of fiscal 2023, net income dropped 22% to $3.2 billion versus Q1 fiscal 2022.

The decline in net income was due to higher loan-loss provisions (up 407% to $532 million), the imposition of the new 15% federal tax, and rising expenses. Nevertheless, McKay said, “Our results are a testament to our diversified business model underpinned by momentum from client-driven growth across our largest segments as well as the benefit from higher interest rates.”

Solid track record

The $182.57 billion bank’s dividend track record is now 153 years. When the ban on dividend increases was over in November 2021, RBC joined the dividend bonanza of big banks by increasing its quarterly dividend by 11%. For fiscal 2022, the total dividend payments of $5.41 billion represent a 5.92% increase from the previous year.

If you invest today, RBC trades at $131.35 per share (+5.23% year to date) and pays a 4.02% dividend. The yield is not exceptionally high, but you have a quality stock that pays rock-steady dividends whatever the market does.

The post The Perfect Dividend Stock to Protect Your Portfolio in Volatile Times appeared first on The Motley Fool Canada.

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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.