Banks as Investments - Works for Me

Written by The Dividend Guy on August 26, 2006

One of my best performing companies has increased its dividend yet again - an increase 0f 11% to $0.40 per share per quarter. This increases my yearly dividend income to $978 from $929. In addition, Royal Bank had a pretty good run up over the last couple of days in anticipation of the earnings increase.

I been very happy with Royal Bank, in fact it is the best performing stock in my portfolio with an annualized return of 24%. I am sure there are many investors in Canada who are in similar situations as banks tend to be very large holdings for portfolios due to the performance as well as the higher than average dividend yields our banks tend to through off. I don’t think it is much different in the United States as companies like Citigroup and Bank of America (which I own) have had good performance through the years and throw off a good dividend.

I believe that every portfolio should have at least one bank in them. If you hold any type of mutual fund (balanced, Canadian equity, US equity) you more than likely hold banks within that. My experience has been that banks do not have too much in terms of volatility (although some have more than others) and throughout history they have showed good share price appreciation. The chart below provides a snapshot of this (mind you the farthest I could go back was 2001):

Financial Index Performance

As my portfolio continues to grow I will look at adding other banks.


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2 Comments so far

  1. My 1st Million At 33 August 27, 2006 9:09 am

    Personal Finance Carnival #63…

    This is the first time that I host PF carnival at 1stMillionAt33. Thanks to Flexo at Consumerism Commentary for giving me this chance to host PF carnival #63. If you’re first time here on my site, you can take a look at my SiteMap on the right …

  2. Hawkmoon Nine August 29, 2006 5:13 pm

    I really like some of the larger banks as investments, I go through my reasoning for owning Bank of America at my blog Get Rich Slowly

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