Investing is a long game, but you don’t need +30 years to build a good nest egg for retirement. The later that you start, however, the more you’ll want to have saved up. If you’ve got $100,000 that you can invest with and 25 years until retirement, you can still turn that into more than a million dollars by retirement.
Below, I’ll show you a strategy that can work by investing in a blue-chip stock that won’t involve taking on significant risks and that will just rely on a combination of capital appreciation and dividend growth to help you build your savings.
Selecting the right stock is key
A good example of a suitable retirement stock is BCE (TSX:BCE)(NYSE:BCE), which is diverse and has assets in multiple industries. It’s an important consideration because it ensures that the company is not overexposed to one industry, giving it room to adjust its strategy as needed. Over the long term, the stock looks to be as safe as can be and is one of the most stable ones that I’ve observed on the TSX.
As the company continues to grow, it will not only provide your portfolio with a lot of opportunities to earn dividends but to cash in on a growing share price as well. Currently, BCE pays a dividend of over 5% per year, and it has increased its payouts by an average of 5.1% per year, based on the past five years. That dividend growth means that you’ll be earning more on your dividend years from now by doing nothing else than holding the stock.
Investing $100,000 today would earn you an annual dividend of around $5,200. However, fast forward 10 years and you could be earning more than $8,500 a year. And by year 20 you could be earning as much as $13,000 on your initial investment.
It’s important to note that there’s no guarantee these dividends will continue growing at this rate because there’s always a danger that BCE could run into trouble and reduce or stop its payouts. While there’s no reason to believe that will happen any time soon, it’s a risk that investors need to be aware of nonetheless.
A look at where the growth could come from
If we do assume the dividend growth will be consistent, then investors could earn more than $250,000 in dividends over the course of the next 25 years.
The majority of the growth in your portfolio over that time is likely to come from the stock itself. Over the past 10 years, BCE’s stock price has increased by an average of about 9.37% per year. If we assume that to remain consistent for the next 25 years, then the value of the portfolio will eventually rise to around $940,000.
Combined with the dividend income, your portfolio plus dividends could be worth around $1.2 million. Below is a year-by-year summary of how the portfolio’s value and dividend income would look under this model, beginning with the end of year one.
| Year | Portfolio | Quarterly Dividend | Annual Dividend |
| 1 | $109,374.63 | $0.79 | $5,196.72 |
| 2 | $119,628.10 | $0.83 | $5,462.63 |
| 3 | $130,842.80 | $0.88 | $5,742.15 |
| 4 | $143,108.83 | $0.92 | $6,035.97 |
| 5 | $156,524.76 | $0.97 | $6,344.82 |
| 6 | $171,198.38 | $1.02 | $6,669.48 |
| 7 | $187,247.60 | $1.07 | $7,010.75 |
| 8 | $204,801.37 | $1.12 | $7,369.48 |
| 9 | $224,000.75 | $1.18 | $7,746.56 |
| 10 | $245,000.00 | $1.24 | $8,142.95 |
| 11 | $267,967.85 | $1.31 | $8,559.61 |
| 12 | $293,088.85 | $1.37 | $8,997.60 |
| 13 | $320,564.86 | $1.44 | $9,457.99 |
| 14 | $350,616.64 | $1.52 | $9,941.95 |
| 15 | $383,485.66 | $1.59 | $10,450.66 |
| 16 | $419,436.03 | $1.68 | $10,985.41 |
| 17 | $458,756.62 | $1.76 | $11,547.52 |
| 18 | $501,763.37 | $1.85 | $12,138.40 |
| 19 | $548,801.84 | $1.95 | $12,759.50 |
| 20 | $600,250.00 | $2.05 | $13,412.39 |
| 21 | $656,521.23 | $2.15 | $14,098.69 |
| 22 | $718,067.69 | $2.26 | $14,820.10 |
| 23 | $785,383.90 | $2.38 | $15,578.43 |
| 24 | $859,010.76 | $2.50 | $16,375.56 |
| 25 | $939,539.86 | $2.63 | $17,213.47 |
| TOTAL | $939,539.86 | $252,058.77 |
There are certainly many assumptions that are built into this, and investors should be aware that by no means is past performance a guarantee of how the company will do in the future. There are many variables that could change the trajectory for BCE. The point of this is example is to show that even with 25 investing years left, the right blue-chip stock could yield strong results for you that you can build on for your retirement.
