Royal Bank hikes dividend 6% after record profit

Canada's largest bank is hiking its dividend for common shares by six per cent after reporting a record third-quarter profit that beat analyst estimates.

Royal Bank of Canada said Friday it had $2.378 billion of net income in its third quarter, up four per cent from a year earlier.

The bank says its Canadian banking, capital markets, wealth management and insurance businesses all had record third-quarter earnings.

RBC also announced that its dividend on common shares will be increased by four cents to 75 cents per share, payable on Nov. 24.

Barclays analyst John Aiken says the profit and the dividend increase were higher than expected.

He said RBC's capital markets operations did exceptionally well, with trading revenue up in all lines and advisory fees up 80 per cent from a year earlier.

"While we do not believe that the market will assume that these levels will be fully sustainable, they should improve Royal's ongoing earnings outlook as it continues to outperform versus its global peers as well as against expectations," Aiken wrote in a research note.

Aiken said that Royal Bank's retail banking operations were "not terribly strong," but added that was anticipated.

RBC's net income from personal and commercial banking services was $1.134 billion, down $29 million or two per cent from a year earlier due to costs associated with the sale of its Jamaican operations. Canadian banking, however, had record net income of $1.18 billion up three per cent from a year earlier.

RBC Capital Markets had $641 million of net income, up $225 million or 66 per cent from a year before. Wealth Management's net income was $285 million, up $52 million or 22 per cent and Insurance had $214 million of net income, up $54 million or 34 per cent year-year.

The only major business unit that didn't set an RBC third-quarter record was Investor and Treasury Services, which had $110 million, up six per cent from a year ago.

"These results demonstrate the strength of our diversified business model," said Dave McKay, RBC's new president and chief executive officer.

McKay, who took over the helm at the bank in August from Gord Nixon, has said he wants to grow RBC's U.S. wealth management business, with possibility expanding its corporate loan business and private banking services.

Royal Bank is the country's largest bank by assets and market capitalization and has 79,000 employees serving more than 15 million clients. The bank has operations across North America and in 44 other countries

Its third quarter ended July 31 included a $40-million loss related to the previously announced sale of RBC's Jamaican operations. A year earlier, RBC recorded a $90-million income tax adjustment in its favour.

Excluding those items, Royal Bank would have had $2.418 billion of adjusted net income in the three months ended July 31 — up 10 per cent from a year earlier and up 10 per cent from the previous quarter.

RBC's third-quarter profit this year amounted to $1.59 per share under standard accounting and $1.64 per share on an adjusted basis.

Analysts had generally estimated Royal would have $1.54 per share of net income and $1.56 per share on an adjusted basis, according to estimates compiled by Thomson Reuters.

In the same quarter last year, Royal Bank had $2.285 billion of net income before adjustments or $2.195 billion excluding the income-tax item.