How Canadian Millennials Can Retire as Millionaires

Here’s how investing in dividend growth stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Canadian National Railway Company (TSX:CNR)(NYSE:CNI) can make Millennials rich when they retire.

| More on:
The Motley Fool

If you are under the age of 35 and grew up in Toronto or Vancouver, you might be feeling a bit depressed right now.

Your parents probably bought your family home for a reasonable price, paid it off over 25 years, and watched the value soar to the point where the property is now worth more than $1 million.

It seemed like such a simple and straightforward way to save and invest. Now, young families can’t afford these properties, and the likelihood prices will rise the same way over the next 25 years is pretty much zilch.

So, how can young investors still put money away and end up with $1 million in assets when they retire?

The answer lies in dividend stocks and your tax-free savings account (TFSA).

The wonderful thing about being a young investor is that you have the benefit of time to watch your portfolio steadily grow throughout your working years. With a few smart picks, Millennials can maximize the contribution space in their TFSA, reinvest the dividends, and watch the money slowly grow to become a nice little nest egg.

Here’s how it works.

Anyone who is at least 25 years old has already accumulated $36,500 in TFSA contribution room. If you can catch up, that’s great. If not, let’s say you are going to start putting the current annual maximum of $5,500 away for the next 35 years.

By investing in dividend-paying stocks, you should be able to average a return of at least 5%, especially with the dividends being reinvested and the stocks increasing in value over time. According to Morningstar’s popular Andex charts, the Canadian stock market has delivered an average annual return of about 10% since 1950.

At a 5% rate of return, the $5,500 annual contribution will grow to $521,600. This means a 30-year-old couple would be able to put away more than $1 million by the time they reach the age of 65.

Which stocks should you buy?

The important part of this process is choosing best-in-class stocks with a long history of dividend growth and rising profits. Ideally, the companies enjoy a sustainable competitive advantage and operate in an industry that will continue to grow for decades.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Canadian National Railway Company (TSX:CNR)(NYSE:CNI), and Fortis Inc. (TSX:FTS) are good places to start.

Toronto-Dominion Bank operates Canada’s strongest retail banking operation and now has more than 1,300 U.S. branches. A single $10,000 investment in Toronto-Dominion’s shares in March 1995 would now be worth more than $180,000.

Canadian National Railway is the only rail company in North America that has access to three coasts. This gives it a great competitive advantage, and the barriers to entry in the rail business make Canadian National an ideal long-term choice. A $10,000 investment in Canadian National Railway in March 1997 would now be worth more than $250,000.

Fortis Inc. is an electric and gas utility company. This doesn’t sound very exciting, but it is the perfect investment for multi-decade holding. The company continues to expand through strategic acquisitions and increases its dividend every year. A $10,000 investment in March 1995 would now be worth more than $120,000.

These results are total return calculations, which include share price appreciation and reinvested dividends. Even without the dividends being reinvested, the gains are still substantial.

With a bit of discipline and a lot patience, today’s Millennials can set themselves up nicely for a tax-free ride to retirement riches.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway.

More on Dividend Stocks

A meter measures energy use.
Dividend Stocks

TFSA Investors: 3 Safe Utility Stocks to Buy and Hold for Decades

Here are three top utilities to spend some fresh TFSA cash on in the new year.

Read more »

money cash dividends
Dividend Stocks

TFSA Investors: An Easy Way to Boost Your Payouts to $350 Per Month

Because of the tax-free nature of the TFSA, investors have several advantages, especially when buying high-quality dividend stocks.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Dividend Stocks

TFSA Passive Income: Earn $126/Month Tax Free for Decades

Do you seek passive income? Leverage your TFSA to earn a solid tax-free passive income through these stocks.

Read more »

lab worker inspects test tubes
Dividend Stocks

Warren Buffett’s Buying This Passive Income Stock

Berkshire began buying this chemical company earlier this year and hasn't stopped.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Dividend Stocks to Buy Now Under $50

Here are two of the best under-$50 dividend stocks you can buy in Canada right now.

Read more »

TELECOM TOWERS
Dividend Stocks

If I Could Only Buy 1 Stock Before 2023, This Would be it!

If you could buy 1 stock before 2023, what would it be? Here’s the stock I’m considering, and I think…

Read more »