Royal Bank raises dividend and plans buybacks as results hit by cautious outlook

Royal Bank of Canada signage is pictured in the financial district in Toronto Sept. 8, 2023. Photo by Andrew Lahodynskyj /The Canadian Press

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TORONTO — Royal Bank of Canada’s cautious outlook on the future led to a notable build in its provisions for potential loan losses in the quarter, though profits also rose and it increased payouts to shareholders.

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The bank on Thursday reported a second-quarter profit of $4.4 billion, up from $3.95 billion in the same quarter last year. It also increased its dividend by six cents, or four per cent, to $1.54 per share and announced plans to buy back up to 35 million shares.

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The rise in payouts came even as the bank factored in a new downside scenario to its risk analysis looking at the potential fallout from trade disruptions.

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“This new scenario reflects the potential for a severe North American recession driven by an escalating global trade war and rising geopolitical risks that translate into a rapid rise in unemployment, higher inflation, disruptions in supply chains, and a sharp decrease in asset prices,” said chief risk officer Graeme Hepworth on an earnings call.

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The bank’s outlook helped lead it to set aside $1.42 billion for potentially bad loans, up from $920 million a year earlier, and changed where the bank was allocating reserves.

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But for now the bank, like others this quarter, has seen borrowers hold up better than feared.

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“Clients continue to demonstrate resilience, with credit performance improving as interest rate cuts and wage growth have made it easier to service debt,” said Hepworth.

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“Mortgage renewal pricing and refinancing risk have played out better than we anticipated.”

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Revenue totalled $15.67 billion in the quarter, up from $14.15 billion.

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The bank’s profits amounted to $3.02 per diluted share for the quarter ended April 30, up from a profit of $2.74 per diluted share a year earlier.

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On an adjusted basis, RBC said it earned $3.12 per diluted share in its latest quarter, up from an adjusted profit of $2.92 per diluted share in the same quarter last year.

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The average analyst estimate had been for an adjusted profit of $3.19 per share, according to LSEG Data & Analytics.

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Analysts noted that the bank’s more conservative approach helped lead to the miss, while most of the other big Canadian banks beat expectations this quarter on lower-than-expected provisions. But they also noted other pockets of concern, including overall margins.

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Chief executive Dave McKay said the bank knew its conservatism would lead to an earnings miss, but the bank made the provisioning moves because that’s what the models showed.

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“We knew that would cause us at the top of the house to miss expectations, but we still took them at the end of the day because that’s what the scenarios advised us. But they are a conservative scenario,” he said on the call.

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This report by The Canadian Press was first published May 29, 2025.

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Companies in this story: (TSX:RY)

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