Royal Bank (TSX:RY) holds the distinction of being Canada's largest bank by market capitalization, with a value of approximately $190 billion. Since late October last year, its share price has surged by 25% on the TSX, sparking investor interest in evaluating RY stock as a potential investment option for their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios. This is especially pertinent for investors targeting dividends and total returns. Additionally, investors looking for exposure to the banking sector on the TSX may also consider other TSX banking stocks, which offer a diverse range of investment opportunities within the Canadian financial industry.

Currently trading near $135, Royal Bank's shares have rebounded from a 12-month low of around $108. The stock reached a high of $147 in early 2022 before experiencing a downward trend for much of the following two years, largely attributed to interest rate hikes initiated by the Bank of Canada and the U.S. Federal Reserve to curb inflation. However, recent market optimism surrounding anticipated rate cuts in 2024 has propelled bank stocks higher.

Economic indicators, including a decline in inflation from over 8% in June 2022 to 2.8% in February 2024, suggest that central bank strategies to cool the economy are yielding results. As concerns about a deep recession ease, economists anticipate a short and mild recession, which bodes well for continued borrowing by businesses and stable unemployment rates.

Moreover, Royal Bank's recent acquisition of HSBC Canada is expected to bolster its revenue and expand its affluent client base, further supporting its stock price. However, risks such as soaring oil prices and sustained wage growth could potentially disrupt the downward inflation trend and lead to prolonged interest rate levels.

Currently trading at approximately 12.6 times trailing 12-month earnings, Royal Bank may not be considered cheap. Nevertheless, its strong profitability and dividend yield of about 4% make it an attractive option for patient investors with a long-term investment horizon. While considering a half position at its current price point, investors may opt to accumulate more shares on any potential pullbacks in the future.