​RBC flexes profit muscle in Q2, dividend dividend 7%

Royal Bank of Canada trounced profit expectations in its latest quarter despite weakness in its capital markets division. It also announced a dividend hike.

RBC said Thursday its total net income rose six per cent year-over-year to $4.25 billion in the fiscal second quarter, which ended April 30. On an adjusted basis, it earned $2.99 ​​per share; the average estimate among analysts tracked by Bloomberg was for $2.69 in per-share profit.

The bank also raised its quarterly dividends to $1.28 per share as of Aug. 24, from its current payment of $1.20. Bloomberg’s dividend forecast tool anticipated a dividend of $1.23.

Even though markets have been rocked lately by worries about central bank policies, inflation, Russia’s attack on Ukraine, and China’s attempt to contain COVID-19, RBC’s profit in the latest quarter got a big lift from the release of funds that were previously set aside for loans that could go bad. The bank said it freed up $342 million that had been reserved for loan loss provisions. In the preceding quarter, it booked $105 million in provisions.

In a release, RBC said the improvement in credit quality was “mainly driven by reduced uncertainty relating to the COVID-19 which was partially tempered by increased downside risks, including rising inflation and interest rates.”

The bank’s bread-and-butter personal and commercial division’s profit surged 17 per cent year-over-year to $2.23 billion. It benefitted from higher revenue, as well as the release of $276 million from loan loss provisions.

RBC’s capital markets unit was the blemish on profit in the fiscal second quarter as net income tumbled 26 per cent year-over-year to $795 million. The bank attributed that primarily to a drop in fixed income and equity trading revenue.

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