In November I discussed how I made minor adjustments to my portfolio given current circumstances. I ended up selling my local bank, First Source (SRCE), and bought into Royal Bank of Canada (RY). Both companies are in the same industry, banking, and carry a dividend yield over 3%. However, RY is the largest bank in Canada by market cap and derives most of its revenue from its home country. Even so, the bank has some U.S. exposure and does business in 34 countries. According to analysts, RY is just about as safe as mega cap bank JP Morgan in the U.S. Therefore, given the economic environment, I opted for more broad global exposure vs. the local market serviced by SRCE.
I live in northern Indiana and First Source Bank is well known where I live. The serve primarily the Great Lakes region in towns like South Bend, Mishawaka, and Elkhart. This is also where Notre Dame university is. Locally, our main industry is RVs. There are large plants all over Elkhart County. These RV related jobs are hard to automate and even harder to relocate overseas. These jobs pay well and help to support other local businesses. So essentially when you invest in 1st Source you sort of invest in the RV industry. And yes, due to decreased air travel RVs are doing fairly well. In my job I derive a lot of my manufacturing sales from RV suppliers.
I invested in First Source because I knew the business well and I knew the local area even better. My family moved to Indiana when I was just a year old. I opened my first checking account at 1st Source and even got my mortgage there. Financially, the company consistently grew revenue YOY, they were a dividend champion, and benefited off the booming economy over the last 3+ years. Unfortunately, the future of the United States doesn’t look as good as it once did. First Source and RVs may be doing well now. But will this continue if discretionary spending contracts? If the local area doesn’t do well, how will First Source continue their excellent track record?
This is why I reallocated to RY. Royal Bank of Canada is quite literally 150x larger than First Source. They do business in 34 diverse markets (countries) and also have strong financials. Dividends have risen consistently over the past several decades with a current yield of around 4%. Loan losses during the pandemic weren’t as bad as expected. The company is also finding ways to generate revenue despite low interest rates. Examples include growing their securities trading business and acquiring new companies like Founded Technologies. Overall, the bank offers exposure to the financial sector with the safety not offered by local U.S. banks. Therefore, I feel comfortable with this new holding despite First Source (likely) over performing in the short term.
I am long on SRCE, and RY. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.